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THE  BANKER'S  CREDIT  MANUAL 


THE 

'BANKER'S  CREDIT 

•MANUAL 


A  COMPLETE  SURVEY  OF  THE  CREDIT  DEPARTMENT— ITS  OBLIGATIONS 
AND    ITS   OPPORTUNITIES.     HOW  TO  SYSTEMATIZE  THE  WORK, 
STABILIZE   OPERATIONS,  AND    FACILITATE  INVESTI- 
GATIONS; TOGETHER  WITH  SCHEMES  FOR 
COMPARATIVE    ANALYSES    AND 
MANY  APPROVED  FORMS 
REPRODUCED  IN 
FACSIMILE 


A 
By  / 

ALEXANDER  WALL 

n 

Credit  Manager 

National  Bank  of  Commerce 

Detroit 


l/^' 


INDIANAPOLIS 

THE  BOBBS-MERRILL  COMPANY 

PUBLISHERS 


Copyright  1919 
The  Bobbs-Merrill  Company 


"■f^     //AS        '&r/z)/)     ^in£>i^ir) 


THIS  BOOK  IS  DEDICATED  TO 

ST.  MARK'S  SCHOOL,  SOUTHBORO,  MASSACHUSETTS,  WHOSE 

MOTTO,  AGE  QUOD  AG  IS,  SHOULD  BE  THE  MOTTO 

OF  EVERY  CONSCIENTIOUS  CREDIT  MAN 


FOREWORD 

Every  book  should  have  an  object,  and  that  object,  whether  it 
be  to  entertain  or  educate,  should  be  clearly  understood  at  the 
very  start  so  that  only  those  to  whom  it  would  be  of  value  may 
undertake  its  reading.  The  reason  for  this  Foreword  is  to  ex- 
plain clearly  in  a  few  words  the  objects  of  this  book,  which  are 
two — for  it  may  be  called  A  Why  and  How  Book. 

The  basic  reason  of  this  book  is  to  educate.  The  idea  of  enter- 
tainment does  not  enter  into  its  conception  except  as  some  of  the 
ideas  in  it  may  please  those  students  of  bank  credit  who  are  in 
love  with  their  work  and  to  whom  it  may  bring  the  stimulating 
effect  of  giving  them  an  opportunity  to  compare  their  own  ideas 
\Aith  the  ideas  of  others. 

Primarily  it  is  not  meant  for  the  more  mature  minds  in  the 
field  of  bank  credit,  except  in  some  chapters,  but  is  more  widely 
meant  for  younger  men — assistants  who  are  possessed  of  suffi- 
cient zeal  to  study  the  technique  of  bank  credits  so  that  they  may 
more  readily  achieve  judgment  and  credit  knowledge. 

The  opening  chapter  deals  with  the  theoretic  principle  of  credit 
very  briefly.  The  colleges  provide  long  courses  for  the  deeper 
study  of  economics,  but  no  book  on  credit  can  be  complete  without 
some  discussion  of  the  subject  from  this  standpoint.  The  average 
man  approaches  this  kind  of  study,  however,  in  an  attitude  of 
skepticism  and  distrust.  "Give  us  something  practical,"  is  the 
cry,  and  so  this  is  written  with  the  idea  of  giving  as  little  theory 
as  possible  and  as  much  of  the  practical  as  can  be. 

There  are  many  forms;  nearly  all  reproductions  of  those  in 
actual  use  by  representative  banks,  but  some  are  adaptations  and 
combinations  made  with  the  idea  of  offering  suggestions.  These 
are  -by  no  means  only  the  forms  used  by  the  author,  in  his  own 


FOREWORD 

work,  but  are  in  many  instances  forms  received  through  the 
courtesy  of  friends  whose  departments  touch  other  phases  of 
credit  than  his  own.  Every  part  of  every  form,  however,  has 
been  tested  by  actual  use  and  serves  a  definite  purpose. 

The  objects,  then,  are  to  show  how  and  why  certain  things  are 
done  and  certain  records  kept  in  any  well-organized  bank  credit 
department  with  the  object  of  making  it  easier  for  the  younger 
credit  men  to  learn  and  understand  the  use  of  their  tools  and  to 
help  the  older  man  compare  his  method  with  that  of  others. 

A.  W. 


CONTENTS 

CHAPTER  PAGE 

I    Some  Credit  Economics  and  Word  Definitions 1 

What  Is  Political  Economy — Barter,  Exchange,  Money — Credit 
— Is  Credit  a  Power  or  an  Executed  Act — Banks :  The  Manu- 
facturers of  Credit — Banks :  The  Accumulators  of  Credit — 
Banks :  The  Trustees  of  Credit.  Percentage  of  Loss — Banks 
not  Partners — Peaks  of  Borrowing — Liquidity  of  Credit  Essen- 
tial to  Good  Banking. 

II    Bank  Credit  Department  Functions 13 

Quality,  not  Size,  the  Measure  of  Goodness — Proper  Presenta- 
tion of  Essentials  to  Discount  Cornmittee — When  Should  Credit 
Investigations  Begin — The  Credit  Folder — A  Credit  Record 
Card  for  New  Accounts — A  Credit  Record  Card  for  the  Bor- 
rower. 

III  Sources  of  Credit  Information 30 

The  Property  Statement — The  Statement  Request — Statements 
and  the  Federal  Reserve  Banks — Remembering  to  Ask  for 
Statements :  The  Statement  Tickler — The  Personal  Credit  In- 
terview— Commercial  Agencies — The  Interchange  Bureaus — 
Trade-Checking  the  Customer — The  Press — General  Hearsay 
and  Impressions. 

IV  Statement  Forms  for  Borrowers 57 

Statements  or  Collateral — Statements  Audited  and  Unaudited 
— Typical  Statement  Forms  in  Use — The  Comparative  Analysis 
Sheet— The  Two  for  One  Theory— Some  Points  to  be  Watched 
in  Comparative  Analysis — Synopsis  of  Statements  for  Loaning 
Officers. 

V    Internal  Statement  Analysis 137 

The  Current  Ratio— Receivables  to  Merchandise  Ratio— Worth 
to  Fixed  Assets  Ratio— Debt  to  Worth  Ratio— Inertia  or  Sales 
to  Receivables  Ratio — Momentum  or  Sales  to  Merchandise 
Ratio— Vitality  or  Sales  to  Worth  Ratio— Internal  Compara- 
tive Analysis  Record. 

VI    Type  Analysis 151 

The  Internal  Tests— Method  of  Figuring  Ratios— The  Law  of 
Average— Types  an  Interesting  Study— Types  Diverge  from 
Two  for  One— Securing  Sales  Records  Most  Important. 


CONTENTS— a«/m«^^ 

CHAPTER  ,  PAGE 

VII     Discount  Committee  Organization 165 

Rotation  of  Members — Formal  Type  of  Organization — Size  of 
Committee — Frequency  of  Meetings — Order  of  Business — Use 
of  Credit  Department  Loan  Cards — Using  the  General  Knowl- 
edge of  the  Board. 

VIII    Cost  and  Profit  of  a  Checking  Account 178 

Margin  of  Profit  on  Bank  Sales  Low — The  Borrowings  of  a 
Customer  Secondary  Profit — Cost  of  Operating  Caused  by 
Physical  Volume — Cost  in  Proportion  to  Salary  Handlings — 
The  Count  System. 

IX     Commercial  Paper 194 

Different  in  Character  from  Depositor  Borrowings — Character 
of  Commercial  Paper — Absence  of  General  Open  Credit  Mar- 
ket— Method  of  Issue — Character  of  Commercial  Paper  Seller 
Important — Differentiation  of  Types  of  Paper — Under  Option 
— Credit  Department  Record  of  Purchases — Inquiry  Letters — 
File  Revision  Abuses — Territorial  Economic  Condition — Co- 
operation :    How  to  Get  It. 

X    The  Interview  and  Visit  to  Plant 211 

The  Fraudulent  Statement — Questions  Supplement  Asset  and 
Liability  Statement — Interview  Questionnaire — Comniercial 
Paper  Questionnaire — Visiting  the  Plant — Things  to  Consider 
at  the  Plant— The  Route  Through  the  Plant— General  Plant 
Efficiency — Use  for  a  Kodak. 

XI    Depreciation  and  Generalities 225 

Sales  and  Losses — Repossession  Loss — Merchandise  at  Cost — 
Plant  Depreciation — Depreciation  Due  to  Obsolescence — Ap- 
praisals— Patents  as  Assets — Collateral  Loans — Acceptances — 
•The  Robert  Morris  Club  and  a  Code  of  Credit  Department 
Ethics. 


THE  BANKER'S  CREDIT  MANUAL 


The  Banker's  Credit  Manual 

CHAPTER  I 

Some  Credit  Economics  and  Word  Definitions 

If  we  are  to  study  any  subject  it  behooves  us  first  of  all  to 
understand  what  we  are  to  study.  While  the  object  of  this  book 
is  to  disclose  some  of  the  theories  and  practises  by  which  a  bank 
credit  man  attempts  to  solve  his  problems,  yet  we  can  not  under- 
take the  study  of  the  machinery  itself  until  we  know  what  we  are 
handling.  So  many  business  men  and-  successful  bankers  have 
achieved  their  successes  by  dint  of  their  own  intuitive,  clear- 
headed judgment,  that  they  are  sometimes  too  prone  to  dismiss  as 
futile  all  study  of  the  theoretical  kind.  The  college  professor  and 
his  economic  laboratory  are  put  aside  as  theoretic  vagaries  to  be 
tolerated  perhaps  as  a  kind  of  plaything  for  the  boys  and  girls, 
but  not  to  be  considered  as  of  any  practical  value  in  the  every-day 
affairs  of  business.  There  can  be  no  doubt,  however,  as  to  the 
fact  that  every  business  success  of  long  standing  and  firm  foun- 
dation has  become  so  because  the  man  at  the  head  of  that  busi- 
ness operated,  knowingly  or  subconsciously,  in  accord  with  the 
basic  laws  of  political  economy.  Some  men  may  have  developed 
their  theories  by  academic  study,  trimmed  and  rounded  by  experi- 
ence. Others  may  have  reached  success  by  the  long,  hard  daily 
grind.  But  either  extreme  and  all  between,  if  they  are  to  continue 
successful,  must  conduct  themselves  in  accordance  with  the  laws 
of  political  economy. 

1 


4  THE  BANKER'S  CREDIT  MANUAL 

all  the  dangers  that  surround  business.  The  bartering  of  the 
ancients  accomplished  the  trade  and  the  payment  at  one  and  the 
same  time.  The  double  necessity  of  wants  tended  to  this.  But 
in  the  modern  world  the  product  passes  through  many  hands 
before  it  ultimately  reaches  him  who  wants  it  for  consumption, 
and,  while  the  old  barter  laws  of  want  or  demand,  h.aving  or 
supply  still  govern  value,  the  maker  or  producer  parts  with  his 
product  long  before  it  reaches  the  hand  of  the  consumer.  The 
interval  between  is  an  ever-widening  one,  and  the  machinery  is 
more  and  more  complex,  so  that  perhaps  the  most  difficult  part 
of  the  system  to  understand  and  at  the  same  time  the  most  nec- 
essary to  our  modem  world,  is  credit. 

Credit  has  been  variously  defined.  The  dictionary  says  ''sale 
on  trust/'  Henry  Dunning  McLeod  says  of  credit:  ''Credit  is 
the  present/right  to  a  future  payment."  William  Stanley  Jevons, 
an  English  economist,  says :  "Credit  is  found  to  be  nothing  but 
the  deferring  of  a  payment."  Professor  Richard  T.  Ely  defines 
credit  as  "A  transfer  of  goods  for  a  promised  equivalent."  Pro- 
fessor C.  J.  Bullock  states,  "Credit  may  be  defined  as  the  power 
to  secure  commodities  or  services  at  the  present  time  in  return 
for  some  equivalent  promised  at  a  future  time." 

There  are  several  main  points  that  are  present  in  each  of  these 
definitions.  First,  that  there  must  be  an  exchange  of  goods, 
wealth  or  service  for  which  no  actual  final  payment  was  made  at 
the  time  of  that  exchange.  Second,  there  must  be  an  expectation 
of  future  payment  based  on  a  promise  of  the  buyer  to  make  such 
payment.  Third,  there  must  be  confidence  on  the  part  of  the 
seller  that  the  promise  of  the  buyer  to  effect  a  final  settlement  is 
certain  of  fulfilment.  There  should  be  a  fourth  element  present 
where  we  are  considering  this  subject  from  the  angle  of  com- 


CREDIT  ECONOMICS;  WORD  DEFINITIONS        5 

mercial  use;  that  is,  there  should  he  some  expression  of  the 
medium  in  which,  or  the  measure  by  which  the  future  payment  is 
to  be  gauged.  Taking  all  these  points  into  consideration  and 
using  the  dollar  as  our  accepted  measure  of  value  for  the  proper 
fourth  element,  the  following  seems  to  be  a  good  definition  for 
our  purpose  :  Credit  is  the  power  to  secure  the  present  transfer  of 
wealth,  measured  in  dollars  or  other  monetary  standard,  by  a 
promise  to  pay  at  a  future  time,  based  on  the  confidence  of  the 
seller  in  the  ability  and  willingness  of  the  buyer  to  meet  his  obli- 
gations. 

IS    CREDIT    A    POWER    OR    AN    EXECUTED    ACT  ? 

There  is  a  very  decided  difference  of  opinion  as  to  whether 
credit  is  a  power  or  a  fact.  Some  very  able  men  claim  that  credit 
only  exists  after  having  been  used.  That  is  to  say  the  transfer 
of  goods  must  have  been  made  before  credit  exists.  Others  be- 
lieve that  credit  is  a  potential  power  to  secure  goods  upon  the 
conditional  promise.  If  the  opinion  of  the  first  group  is  correct^ 
then  there  is  a  little  difference  between  credit  and  debt.  It  seems 
more  narrow  and  less  forceful  than  the  interpretation  that  credit 
is  something  vital,  potential,  a  power  and  not  a  dead  transaction 
awaiting  only  the  burial.  From  the  banking  standpoint  there 
can  be  little  argument  but  that  credit  is  a  power.  In  its  larger 
uses,  the  liest  firms  or  individuals  arrange  for  a  credit  line,  or  a 
line  of  credit,  with  their  bankers.  This  means  that  under  certain 
agreements  and  with  certain  restrictions  the  borrower  is  assured 
that  he  may  at  any  time  borrow  up  to  the  amount  of  the  line 
agreed  upon,  and  certainly  credit  in  this  instance  is  a  power 
which  does  exist  prior  to  the  actual  use  of  the  line  granted.  The 
extent  of  a  man's  credit  is  not  measured  by  what  he  has  used, 


4  THE  BANKER'S  CREDIT  MANUAL 

all  the  dangers  that  surround  business.  The  bartering  of  the 
ancients  accomplished  the  trade  and  the  payment  at  one  and  the 
same  time.  The  double  necessity  of  wants  tended  to  this.  But 
in  the  modern  world  the  product  passes  through  many  hands 
before  it  ultimately  reaches  him  who  wants  it  for  consumption, 
and,  while  the  old  barter  laws  of  want  or  demand,  h.aving  or 
supply  still  govern  value,  the  maker  or  producer  parts  with  his 
product  long  before  it  reaches  the  hand  of  the  consumer.  The 
interval  between  is  an  ever-widening  one,  and  the  machinery  is 
more  and  more  complex,  so  that  perhaps  the  most  difficult  part 
of  the  system  to  understand  and  at  the  same  time  the  most  nec- 
essary to  our  modem  world,  is  credit. 

Credit  has  been  variously  defined.  The  dictionary  says  ''sale 
on  trust."  Henry  Dunning  McLeod  says  of  credit:  "Credit  is 
the  present  right  to  a  future  payment."  William  Stanley  Jevons, 
an  English  economist,  says :  "Credit  is  found  to  be  nothing  but 
the  deferring  of  a  payment."  Professor  Richard  T.  Ely  defines 
credit  as  "A  transfer  of  goods  for  a  promised  equivalent."  Pro- 
fessor C.  J.  Bullock  states,  "Credit  may  be  defined  as  the  power 
to  secure  commodities  or  services  at  the  present  time  in  return 
for  some  equivalent  promised  at  a  future  time." 

There  are  several  main  points  that  are  present  in  each  of  these 
definitions.  First,  that  there  must  be  an  exchange  of  goods, 
wealth  or  service  for  which  no  actual  final  payment  was  made  at 
the  time  of  that  exchange.  Second,  there  must  be  an  expectation 
of  future  payment  based  on  a  promise  of  the  buyer  to  make  such 
payment.  Third,  there  must  be  confidence  on  the  part  of  the 
seller  that  the  promise  of  the  buyer  to  effect  a  final  settlement  is 
certain  of  fulfilment.  There  should  be  a  fourth  element  present 
where  we  are  considering  this  subject  from  the  angle  of  com- 


CREDIT  ECONOMICS;  WORD  DEFINITIONS        5 

mercial  use;  that  is,  there  should  l^e  some  expression  of  the 
medium  in  which,  or  the  measure  by  which  the  future  payment  is 
to  be  gauged.  Taking  all  these  points  into  consideration  and 
using  the  dollar  as  our  accepted  measure  of  value  for  the  proper 
fourth  element,  the  following  seems  to  be  a  good  definition  for 
our  purpose  :  Credit  is  the  powder  to  secure  the  present  transfer  of 
wealth,  measured  in  dollars  or  other  monetary  standard,  by  a 
promise  to  pay  at  a  future  time,  based  on  the  confidence  of  the 
seller  in  the  ability  and  willingness  of  the  buyer  to  meet  his  obli- 
gations. 

IS    CREDIT    A    POWER    OR    AN    EXECUTED    ACT  ? 

There  is  a  very  decided  difference  of  opinion  as  to  whether 
credit  is  a  power  or  a  fact.  Some  very  able  men  claim  that  credit 
only  exists  after  having  been  used.  That  is  to  say  the  transfer 
of  goods  must  have  been  made  before  credit  exists.  Others  be- 
lieve that  credit  is  a  potential  power  to  secure  goods  upon  the 
conditional  promise.  If  the  opinion  of  the  first  group  is  correct, 
then  there  is  a  little  difference  between  credit  and  debt.  It  seems 
more  narrow  and  less  forceful  than  the  interpretation  that  credit 
is  something  vital,  potential,  a  power  and  not  a  dead  transaction 
awaiting  only  the  burial.  From  the  banking  standpoint  there 
can  be  little  argument  but  that  credit  is  a  power.  In  its  larger 
uses,  the  l>est  firms  or  individuals  arrange  for  a  credit  line,  or  a 
line  of  credit,  with  their  bankers.  This  means  that  under  certain 
agreements  and  with  certain  restrictions  the  borrower  is  assured 
that  he  may  at  any  time  borrow  up  to  the  amount  of  the  line 
agreed  upon,  and  certainly  credit  in  this  instance  is  a  power 
which  does  exist  prior  to  the  actual  use  of  the  line  granted.  The 
extent  of  a  man's  credit  is  not  measured  by  what  he  has  used. 


^6  THP:  BANKER'S  CREDIT  MANUAL 

but  by  the  amount  he  is  able  to  use.  The  full  measure  of  credit 
is  the  greatest  amount  that  may  be  purchased  at  any  time  with 
promises  of  future  payment.  This  maximum  may  or  may  not 
be  in  use.  That  part  which  has  been  used  is  surely  debt  and 
that  which  has  not  been  used  is  still  a  potential  power  for  further 
•  purchases. 

Modern  business  is  transacted  in  this  country  almost  entirel}' 
by  instruments  based  on  credit  and  depending  upon  the  credit 
judgment  of  commercial  and  bank  credit  men  for  the  soundness 
of  these  instruments.  The  system  is  intricate  in  the  extreme  and 
the  space  afforded  here  can  not  begin  to  cover  the  various  phases 
of  credit  in  all  its  ramifications.  It  can  only  touch  upon  a  few  of 
the  high  spots  to  bring  the  matter  out  in  relief  or  suggestive  form 
so  that  the  student  may  perhaps  have  his  desire  stimulated  to 
dig  deeper  into  that  most  interesting  subject,  credit. 

BANKS THE    MANUFACTURERS    OF    CREDIT 

T  The  place  occupied  by  banks  in  the  credit  scheme  is  distinctly 
peculiar.  They  are  in  fact  manufacturers  and  jobbers  of  credit. 
Unlike  their  commercial  brothers,  they  have  no  merchandise 
wares  which  they  sell  for  cash  or  on  credit  terms.  They  have 
only  one  main  staple  article  for  sale  and  that  is  credit  itself.  The 
demand  for  this  commodity  is  dependent  upon  the  activity  of 
business,  and  at  the  same  time  the  activity  of  business  is  the 
source  of  the  supply.  Credit  is  an  endless  circle  when  viewed 
from  the  bank  man's  standpoint.  In  every  stage  of  development 
from  the  production  of  the  raw  material  until  the  time  it  reaches 
the  ultimate  consumer  there  are  a  series  of  endless  circles  whose 
perimeters  touch  first  one  banking  ofifice  and  then  another.  Here 
they  are  loans,  there  they  create  deposits  and  in  the  end  one  oper- 


CREDIT  ]^:CONOMIC\S;  WORD  DICFINITIONS        7 

ation  washes  another,  one  credit  wipes  out  another,  and  one  de- 
posit goes  to  build  up  another. 

.  It  may  he  interesting-  and  ilhiminating  to  take  as  an  example  a 
single  commodity  and  trace  it  through  its  most  important  stages. 
A  man  with  a  few  thousand  dollars  and  some  land  starts  as  a 
farmer  and  plants  a  crop  of  corn.  He  owns  his  land  free  and 
clear  and  has  enough  cash  to  carry  him  through  the  planting 
season  up  to  the  harvest.  First  he  may  deposit  his  cash  in  a  bank 
to  buy  his  seed  corn — he  draws  checks  against  his  account,  and 
continues  to  draw  until  the  harvest  time.  Harvest  time  finds  him 
short  of  money  to  pay  the  harvest  hands.  He  goes  to  his  bank 
and  demonstrates  to  the  loaning  officer  that  he  is  good  for  a  cer- 
tain amount  of  credit.  He  gives  his  note  and  secures  a  credit 
against  w^hich  he  can  continue  to  draw  so  as  to  pay  for  the  ex- 
pense of  harvesting.  Then  he  sells  his  corn  to  the  country  ele- 
vator. The  elevator  company  has  not  enough  funds  to  pay  for 
all  the  corn  they  wnsh  to  buy.  After  the  first  few  carload  lots  are 
purchased  the  elevator  company  sells  to  the  grain  dealer  in  the 
central  city.  The  corn  is  loaded,  consigned  to  the  city  purchaser 
and  the  railroad  company  issues  a  bill  of  lading.  The  country 
elevator  man  gpes  to  his  banker  and  by  drawing  a  draft  against 
the  purchaser  of  the  corn  and  attaching  the  bill  of  lading  and  dis- 
counting the  draft  with  his  banker  is  put  in  funds  to  buy  more 
corn.  He  repeats  the  operation  many  times.  These  drafts  are 
forwarded  to  the  city  in  which  the  purchaser  is  located.  The 
purchaser  takes  up  w4iat  he  can  with  his  own  money  and  then 
arranges  to  have  the  bank  with  which  he  does  business  extend 
him  credit  based  on  the  com  represented  by  these  bills  of  lading. 
The  bank  of  the  original  grower  has  been  paid  by  the  farmer 
when  he  received  payment  from  the  country  elevator.   The  coun- 


"^8  THE  BANKER'S  CREDIT  MANUAL 

try  elevator  pays  its  bank  when  its  drafts  are  paid  by  the  city 
dealer  and  the  city  dealer  pays  his  bank  when  he  finally  sells  the 
corn  to  the  consumer.  In  all  these  operations  very  little  cash 
figures ;  possibly  none  at  all.  The  banks  have  provided  the  credit 
which  has  taken  the  form  of  a  credit  to  the  checking  account  of 
the  customer  and  the  credit  has  been  passed  along  and  washed  by 
transfer  of  ownership  of  the  corn  and  the  issue  and  execution  of 
checks  and  notes. 

BANKS THE    ACCUMULATORS    OF    CREDIT 

r  Banks  are  the  accumulators  of  credit  through  the  receipt  of 
deposits.  The  deposits  so  received  are  either  transferred  into 
liquid  credit  directly  by  the  bank's  machinery  or  are  used  as  the 

{_  basic  reserve  for  the  manufacture  of  credit.  If  a  bank  has  to  keep 
a  ten  per  cent,  reserve  against  deposits  and,  for  argument's  sake, 
is  keeping  exactly  such  a  percentage,  then  for  every  ten  thou- 
sand reserve  funds  the  bank  would  be  allowed  to  receive  one  hun- 
dred thousand  deposits.  Therefore  a  bank  having  received  a 
ten  thousand  dollar  deposit  from  some  customer  of  funds  that 
could  be  used  as  reserve  would  be  in  the  position  of  being  able  to 
manufacture  one  hundred  thousand  additional  deposits  by  ex- 
panding its  credit  machinery.  This  could  be  done  by  granting 
loans  of  one  hundred  thousand  dollars,  the  results  of  which  were 
credited  to  the  borrower's  checking  account.  As  a  practical  mat- 
ter it  is  this  principal  of  loans  resulting  in  bank  balances  that  binds 
the  loans  and  deposits  so  closely  and  that  in  the  past  caused  such 
strain  and  stress  on  the  bankers  and  on  credit  machinery. 


CREDIT  ECONOMICS;  WORD  DEFINITIONS        9'^ 

BANKS THE    TRUSTEES    OF    CREDIT.      PERCENTAGE    OF    LOSS 

This  position  of  the  loans  being  so  closely  connected  with  the 
deposits  puts  banks  in  a  rather  peculiar  position  in  that  the  bulk  i 
of  the  funds  they  lend  are  in  truth  the  funds  of  their  depositors. 
The  position  is  in  reality  akin  to  a  position  of  trust.  It  is  well 
to  keep  this  in  mind  as  a  danger  sign  against  being  too  liberal  in 
making  loans  or  too  superficial  in  making  credit  investigation,  as 
the  loans  are  from  funds  held  in  trust  and  therefore  worthy  of 
careful  handling.  However,  this  condition  should  not  make  the  -^ 
credit  man  timorous.  A  certain  amount  of  loss  is  bound  to  occur, 
except  in  an  air-tight  policy,  and  it  is  very  difficult  to  make  any 
policy  air-tight  enough  to  stop  all  loss.  There  is  such  a  thing  as  a 
fair  percentage  loss,  and  if  the  bank  falls  much  below  such  a  fair 
percentage  then  it  is  either  extremely  fortunate,  or,  more  probably, 
too  conservative  and  losing  good  business  through  fear  of  ''tak- 
ing it  on,"  as  the  phrase  goes.  If  a  bank  can  operate  on  a  one-  ' 
fifth  of  one  per  cent,  of  its  loan  turnover  as  a  loss  it  is  safe.  If 
this  percentage  be  reduced  to  one-eighth  of  one  per  cent,  it  prob- 
ably has  good  credit  management.  If  it  falls  to  a  one-tenth  or 
a  twelfth  of  one  per  cent,  the  bank  is  becoming  conservative,  and 
if  it  gets  much  below  this  it  is  a  pretty  certain  thing  that  the 
bank  is  losing  good  business  by  being  afraid  to  take  a  fair  bank- 
ing risk.  A  normal  risk  will  be  accompanied  by  a  normal  loss.^ 
Therefore  if  the  loss  is  far  above  or  below  normal  the  risks  taken 
have  tended  to  be  too  great  or  too  narrow. 

The  grain  loans  referred  to  differ  in  security,  if  not  in  eco- 
nomic effect,  from  the  ordinary  commercial  loan  in  that  there 
was  security  back  of  the  loan  at  all  times.  Not  the  general  credit 
of  the  borrower,  but  the  actual  grain  itself  having  at  all  times  a 


\ 

10  THE  BANKER'S  CREDIT  MANUAL 

pknown  market.  In  the  case  of  commercial  loans  this  condition 
does  not  exist  and  it  is  more  with  this  class  of  loan  that  the 
credit  man  of  a  bank  is  directly  interested.  Loans  in  which  he 
is  most  deeply  interested  are  the  non-collateral  loans  based  en- 
tirely on  credit  and  business  performance.  However,  in  any  case 
the  circle  between  credit  and  deposit  works  in  the  same  manner, 
and  when  a  loan  is  unusual  the  credit  study  becomes  more  acute, 

-  more  difficult  and  more  interesting, 

BANKS    NOT    PARTNERS 

In  making  a  straight  loan  the  bank  man  must  realize  and  im- 
press upon  the  borrower  the  fact  that  the  bank  in  no  way  ex- 
pects or  intends  to  become  a  partner  in  the  business.  In  this  kind 
of  loan  the  function  of  a  bank  is  clear  and  distinct.  There  is  no 
doubt  as  to  just  what  a  bank  is  supposed  to  do  when  it  is  engaged 
in  commercial  business.  The  only  mistake  is  that  too  often  the 
borrower  does  not  understand  the  proper  use  of  his  credit  line 
and  gets  into  bad  business  practice.  This  is  so  often  the  case 
that  it  is  worthy  of  comment,  and  perhaps  a  full  economic  under- 
standing by  the  bank  man  himself  may  put  him  in  a  proper  posi- 
tion so  that  he  will  feel  stronger  in  making  his  side  of  the  story 
perfectly  plain  at  the  very  start. 

PEAKS    OF    BORROWING 

In  either  a  manufacturing  plant  or  a  jobbing  house  there  is 
nearly  always  a  seasonal  condition  of  the  inventory  or  the  re- 
ceivables. By  this  is  meant  a  time  when  the  house  stocks  up  in 
inventory  either  raw  material  to  be  manufactured  and  sold  or  a 
stock  of  merchandise  to  be  jobbed.   There  is  a  peak  load  in  inven- 


CREDIT  ECONOMICS;  WORD  DEFINITIONS      II 

tory  running  maybe  for  several  months  before  the  selhng  activity 
reduces  it  to  a  normal  or  sold-out  state.  It  requires  a  greater 
amount  of  investment  to  carry  this  inventory  over  this  period 
than  the  funds  of  the  company  are  capable  of  handling.  To  meet 
this  condition  a  large  quantity  of  goods  is  sold  with  the  option 
of  paying  for  them  in  sixty  or  ninety  days  under  the  supposition 
that  a  certain  amount  of  selling  will  have  resulted  in  sufficient 
liquidation  from  the  goods  to  permit  of  payment.  These  long 
terms  are  almost  always  accompanied  by  a  proposition  allowing 
a  discount  for  cash  payment  within  a  comparatively  short  time. 
The  wise  man  in  good  credit  standing  arranges  for  a  credit  line 
with  his  bank  to  enable  him  to  secure  funds  with  which  to  pay 
his  debtor  on  the  cash  basis  so  that  he  may  get  the  full  advantage 
of  this  discount.  He  in  turn  should  then  so  arrange  his  business 
that  he  will  use  the  proceeds  of  the  sale  of  the  goods  to  reduce  his 
bank  loan,  paying  out  when  the  inventory  has  been  worked  down 
again. 

From  another  angle  a  manufacturer  may  justly  and  w^ith 
proper  economic  foresight  use  his  bank  credit  to  secure  a  proper 
amount  of  raw  material,  pay  manufacturing  costs  and  merchan- 
dise the  completed  product.  This  is  a  proper  use  of  bank  credit. 
But  the  operation  should  run  in  cycles  and  there  should  be  ex- 
pansion and  contraction,  not  just  expansion  nor  even  steady 
borrowing. 

LIQUIDITY    OF    CREDIT    ESSENTIAL    TO    GOOD    BANKING 

Bank  credit  is  designed  to  be  used  only  in  a  liquid  manner  and 
should  not  be  used  as  a  permanent  partnership  capital  at  any 
time.   This  latter  is  the  affair  of  the  stockholder  or  owner  of  the 


\  12  THE  BANKER'S  CREDIT  MANUAL 

business  and  permanent  capital  should  be  the  result  of  invest- 
ment or  earnings. 

p  There  should  be  a  minimum  and  maximum  of  need  to  carry 
merchandise,  or  perhaps  accounts,  and  the  difference  between 
these  is  the  real  field  of  the  bank  loan.  From  the  minimum  down 
the  carrying  should  be  a  matter  of  investment  and  not  commer- 
cial borrowings.  One  of  the  greatest  causes  for  financial  stress 
and  the  trials  and  tribulations  accompanying  commercial  panics 
is,  beyond  question,  the  transforming  of  commercial  credit  that 
should  be  liquid  and  liquidating  into  a  semi-moribund  form  of 

^capital  or  non-liquid  credit  extensions. 

The  thought  of  keeping  credit  at  all  times  in  a  truly  liquid  state 
should  always  be  foremost  in  the  minds  of  bank  men  in  par- 
ticular, as  it  is  through  the  instrumentality  of  banks  and  bank 
loans  that  this  fluid  force  is  moved  from  industry  to  industry  as 
the  demands  of  commerce  shift  and  change.  The  best  proof  of 
liquidness  is  occasional  liquidation. 


CHAPTER  II 

Bank  Credit  Department  Functions 

The  function  of  a  bank  credit  department  is  not  as  simple  as 
some  may  at  first  suppose.  It  has  a  much  wider  scope  than 
merely  preventing  loss  through  the  failures  of  certain  names  that 
may  be  owing  the  bank  money.  Of  course  these  departments  are 
primarily  intended  to  investigate  carefully  all  applications  for 
credit  with  the  idea  of  throwing  out  or  rejecting  those  unworthy 
of  support  and  credit  extension.  But  there  is  a  field  beyond  the 
mere  rejection  of  loans,  and  that  bank  credit  man  is  not  always 
the  best  who,  at  the  end  of  the  year,  can  point  with  pride  to  his. 
loss  record  and  say  we  have  had  less  loss  than  ever  before.  It  is 
not  such  a  difficult  thing  to  become  a  human  negation,  saying  no 
at  every  turn  of  the  wheel.  The  really  valuable  credit  man  must 
have  vision.  He  must  be  able  to  see  the  dangers,  estimate  the 
risk  and  have  enough  courage  to  steer  a  course  on  the  outside 
stormy  seas  as  well  as  in  the  land-locked  harbor.  It  is  far  easier 
to  cry  ''Wolf,  Wolf,"  and  run  to  cover  than  it  is  to  stand  at  the 
front  line  taking  the  knocks  for  some  struggling,  striving  pro- 
ducer, who,  left  alone,  would  go  down  carrying  ruin  to  himself 
and  loss  to  others  with  him.  It  is  the  man  who,  with  the  courage 
of  his  true  convictions,  takes  a  decided  stand  for  real  develop- 
ment and  pockets  his  losses  that  makes  a  real  credit  man.  It  takes 
l)ackbone  and  some  mental  and  moral  fiber  .to  be  a  developer, 
to  make  a  credit  man.  With  nothing  but  "NO"  from  bank  credit 

13 


14  THE  BANKI^R'S  CR1^:DTT  MANUAL 

men  there  would  l)e  little  development  in  Imsiness,  and  as  a  class 
there  is  none  other  that  has  a  greater  task  or  a  more  wonderful 
opportunity  for  big  things  than  bank  credit  men. 

QUALITY,    NOT    SIZE,    THE    MEASURE    OF    GOODNESS 

The  true  function  of  a  1)ank  credit  department  is  to  investigate 
minutely  all  requests  for  loans,  assemble  all  possible  data  and 
make  such  an  analysis  of  conditions  that  the  fair  banking  risk 
may  be  assumed  by  that  bank  of  which  the  credit  department  is  a 
j~ component  part.  No  matter  should  be  too  Small  to  investigate, 
no  case  so  big  as  to  allow  its  mere  bulk  to  overawe  and  secure 
accommodation  to  which  it  is  not  entitled.  It  happens  far  too 
often  that  loans  are  made  to  large  interests  just  because  they  are 
large  and  because  the  credit  man  may  ])e  intimidated  l)y  mere  size. 
It  happens  quite  as  often  that  small  loans  are  turned  down  l3ecause 
they  appear  insignificant  and  their  Liliputian  size  alone  gets  them 
L  a  negative  answer. 

The  bank  man  should  never  lose  track  of  the  fact  that  all 
capital,  all  wealth  of  every  kind  is  economically  the  certain  result 
of  saving.  At  its  inception  all  wealth  was  small  and  many  of  the 
largest  industries  of  to-day  are  the  outgrowth  of  very  small  be- 
ginnings. All  cases,  both  large  and  small,  should  l)e  considered 
on  their  merits  and  if  things  are  reduced  to  a  relation  or  per- 
centage basis,  the  small  risk  may  often  show  up  more  advan- 
tageously than  the  big  one  that  takes  so  much  more  space  in  the 
sun.  Therefore  it  would  seem  that  the  truest  and  first  function 
of  a  credit  department  is  fearless,  impartial  investigation  and 
decision. 


BANK  CREDIT  DEPARTMENT  EUNCTIONS       15 

PROPER    PRESENTATION    OF   ESSENTIALS   TO    DISCOUNT    COMMITTEE 

The  second  function  is  a  proper  presentation  of  the  case  to  the 
discount  committee,  or  such  other  part  of  the  bank  organization 
as  exercises  the  decision  of  making  or  rejecting  loans.  To  do 
this  in  a  right  manner  means  a  proper  keeping  of  records  indi- 
cating the  history  of  the  account  in  the  bank,  the  use  of  all 
the  sources  of  credit  information  at  the  disposal  of  a  l)ank  credit 
man  and  an  analysis  of  the  information  received  so  that  it  may  l>e 
condensed  and  appear  before  the  loaning  officers,  or  discount 
committee,  in  as  short  a  form  as  is  consistent  with  a  complete 
assembling  of  all  essential  information. 

WHEN    SHOULD    CREDIT    INVESTIGATIONS    BEGIN 

While  some  credit  men  and  executives  do  not  agree,  the  fact 
seems,  to  the  writer,  to  be  patent  that  the  proper  time  to  start 
a  credit  investigation  is  at  the  moment  any  account  is  opened. 
There  are  of  course  a  large  number  of  accounts  that  are  accom- 
modation accounts,  such  as  those  of  the  families  of  officers  of 
large  corporations,  friends  of  depositors  carrying  large  accounts 
and  a  great  mass  of  people  who  wish  to  avail  themselves  of  the 
advantages  of  paying  bills'  by  check,  etc.  Among  these  there  are 
many  that  will  never  be  borrowers  in  the  strict  sense  of  the  word. 
That  is,  they  may  never  offer  a  note  for  discount  or  ask  that 
kind  of  credit  accommodation.  It  may  seem  idle  or  useless  to 
keep  any  record  of  these  accounts  in  the  credit  department.  The 
occasion  often  arises,  however,  when  such  an  account  may 
through  error  or  otherwise  issue  checks  in  excess  of  its  balance 
and  create  an  overdraft.  The  question  then  arises  as  to  whether 
or  not  such  a  check  should  be  paid,  allowing  the  overdraft;  or 


16  THE  BANKER'S  CREDIT  MANUAL 

whether  it  should  be  thrown  out  for  ''not  sufficient  funds."  Its  re- 
lation to  other  accounts  then  plays  a  most  important  part  in  the 
decision  and  this  should  certainly  be  a  matter  of  record  some- 
where, and  the  proper  place  is  in  the  credit  department. 

Another  matter  that  enters  very  largely  into  the  payment  of  a 
small  overdraft  check  is  the  normal  condition  of  the  account, 
which  is  most  surely  shown  in  the  average  balance  that  the  ac- 
count has  displayed  during  its  life  in  the  bank.  This  is  also  a  very 
important  thing  in  connection  with  all  accounts,  as  the  average 
balance  is  the  customer's  contribution  to  the  welfare  of  the  bank 
and  in  a  degree  determines  the  consideration,  at  least,  which  his 
association  with  the  bank  is  entitled  to  receive. 

The  start  then  of  credit  records  should  be  made  at  the  inter- 
view that  the  officer  opening  the  account  has  with  the  customer. 
It  is  a  simple  matter  for  that  officer  to  ask  a  number  of  questions 
and  to  make  a  note  of  such  general  information  as  comes  to  his 
attention  at  this  time.  However,  it  is  not  enough  for  the  officer 
to  make  inquiries  and  accumulate  the  information  for  himself 
only  and  then  attempt  to  carry  this  information  in  his  own  mind. 
All  credit  information  should  be  a  matter  of  record  for  the  use  of 
all  officers  of  the  bank  and  should  be  properly  tabulated  and  filed 
so  as  to  be  readily  available.  This  should  be  part  of  the  records 
of  the  credit  department. 

The  form  and  manner  in  which  this  information  should  be  filed 
has  been,  and  must  necessarily  be,  largely  a  matter  of  choice  in 
the  different  departments  of  the  various  banks.  Most  banks  have 
adopted  one  of  two  or  a  combination  of  two  methods :  the  use 
of  a  folder  containing  the  whole  information,  the  use  of  card  files, 
or  a  combination  of  card  file  and  folder.  There  is  much  to  be 
said  in  favor  of  any  one  of  these  three  methods.  The  writer  him- 


BANK  CREDIT  DEPARTMENT  FUNCTIONS       17 

self  believes  in  the  combination  plan,  using  the  folder  for  the 
more  bulky  material  and  the  card  file  for  the  less  bulky  or  the 
digested  matter. 

THE    CREDIT    FOLDER 

As  the  folder  is  to  be  the  resting  place  of  much  credit  infor- 
mation a  discussion  of  its  style  should  come  first  in  our  efforts 
to  standardize  or  prepare  for  the  proper  handling  of  informa- 
tion. As  a  matter  of  expense  it  is  wiser  to  accept  as  a  size  for 
the  folder  such  dimensions  as  will  fit  into  some  standard  filing 
device.  The  one  most  used  is  a  vertical  folder  that  will  accom- 
modate the  ordinary  letterhead  size  sheet  without  folding.  Many 
men  use  a  folder  capable  of  holding  full  legal  size  sheets,  but  this 
is  more  cumbersome  to  handle  and  in  addition  wastes  much  space 
because  letters  are  usually  on  a  standard  sheet  and  most  reports 
come  on  sheets  of  about  the  same  size.  It  seems  but  a  matter 
of  good  sound  judgment  to  decide  that  any  information  that  is 
worth  filing  at  all  is  worth  filing  in  such  a  manner  that  it  will 
not  become  lost,  and  the  best  way  to  accomplish  this  is  to  have  it 
attached  to  the  folder.  Some  credit  men  have  adopted  the  plan 
of  having  the  information  put  on  sheets  that  can  be  fastened 
on  the  margin.  Others  have  it  fastened  on  the  top,  others  at  the 
bottom.  Some  folders  have  elaborate  indexes  as  part  of  their 
equipment. 

Another  point  to  be  considered  is  the  subdivision  idea.  Too 
many  subdivisions  tend,  in  the  writer's  opinion,  to  make  a  file 
cumbersome  and  unwieldy.  For  himself  he  has  adopted  the  file 
with  two  main  divisions.  One  for  information  received  direct 
from  the  customer  and  the  other  for  information  received  from 
other  sources.     The  attaching  of  the  information  to  the  file  is 


18  THE  BANKER'S  CREDIT  MANUAL 

accomplished  by  having  two  ears  turned  in  at  the  bottom  of  the 
file,  one  on  each  side. 

Each  ear  at  the  bottom  being  folded  in  and  punched  with  two 
holes  makes  it  possible  to  attach,  by  the  ordinary  brass  spreader- 
pins  to  be  found  in  any  office  supply  store,  all  sheets  or  mem- 
oranda that  the  credit  department  wishes  to  keep. 

Another  very  good  folder  form  has  a  central  leaf  to  each  side 
of  which  information  may  be  easily  attached  by  the  same  kind 
of  spreader-pins.  This  may  be  more  desirable  as  it  makes  possi- 
ble a  larger  division  of  types  of  information.  It,  however,  is  a 
much  more  costly  file  and  the  advantages  gained  may  or  may  not 
warrant  the  expense  as  the  needs  of  the  department  determine. 

In  any  case  the  method  of  attaching  the  information  sheets  hav- 
ing been  decided  upon  the  subsequent  forms  used  by  the  depart- 
ment should  be  designed  with  this  in  mind. 

If  we  are  to  use  the  two-sided  form  of  folder  with  attaching 
space  at  the  bottom,  the  form  on  the  opposite  page  is  suggested 
as  a  serviceable  sheet  for  collecting  information  when  an  account 
is  opened,  using  ordinary  letterhead  size  as  mentioned,  the  cut 
here  being  reduced  in  size,  for  obvious  reasons. 

This  is  at  least  a  beginning  and  gives  the  credit  man  authentic 
information  as  to  when  an  account  was  opened,  how  it  came  to 
the  bank  and  what  kind  of  an  account  it  is  supposed  to  be.  It 
forms  at  least  a  starting  point  that  will  be  helpful  for  future  in- 
vestigations. 


BANK  CREDIT  DEPARTMENT  FUNCTIONS       19 


Name Date 

Address 

Occupation 

Other  bank  accounts T.  . 


Reason  for  opening  this  account,  commercial 
Will  the  account  l^e  Sr°,r,^,i„g 


Approximate   balances   $ 

Introduced  ])y 

Account  accepted  by 

References  for  possible  credit  investigations 


Relation  to  other  accounts 

General  remarks 

O  O 


A  CREDIT  RECORD  CARD  FOR  NEW  ACCOUNTS 

The  writer  has  developed  the  idea  a  little  further  than  this  and 
uses  a  seven  by  nine  and  one-fourth  card  for  this  purpose  that 
really  serves  two  purposes.  It  collects  the  information  obtained 
at  the  time  the  account  is  opened  and  also  acts  as  a  record  of  the 
average  balances  actually  kept  by  the  customer.  This  result  is 
obtained  by  using  both  sides  of  the  card,  one  for  the  opening  in- 
formation and  the  other  for  the  average  monthly  balance  record. 
A  reduced  facsimile  of  this  card  is  shown  on  pages  21  and  22^ 
indicating  both  back  and  front  of  card. 


20  THE  BANKER'S  CREDIT  MANUAL 

There  are  a  good  many  adaptations  of  this  average  balance 
card,  some  in  three  by  five,  some  five  by  eight  and  some  six  by 
nine  sizes.  For  a  card  showing  nothing  but  average  balances,  a 
three  by  five  card  is  ample,  and  can  carry  an  average  balance 
record  for  eight  or  ten  years. 

But  a  large  proportion  of  the  accounts  of  a  bank  have  another 
relationship  than  that  of  depositor  alone.  The  borrowing  ac- 
count brings  into  existence  a  whole  new^  set  of  relationships,  a 
record  of  which  is  desirable  for  use  by  the  credit  department 
and  loaning  officers.  The  discount  ledger,  of  course,  reflects  the 
borrowing  record  in  detail  and  with  complete  accuracy.  But  the 
credit  department  can  not  have  the  discount  ledgers  contin- 
ually, nor  is  it  convenient  or  good  policy  for  a  loaning  officer 
to  drag  out  the  discount  ledger  whenever  a  borrowing  customer 
comes  in  to  talk  over  his  loan.  It  is  desirable  to  have  a  complete 
survey  of  the  borrower's  relation  with  the  bank  on  as  small  a 
card,  as  condensed  as  possible  and  still  giving  the  essential  infor- 
mation over  as  long  a  period  as  may  be  practical. 

First  of  all  we  should  determine  what  such  a  record  should 
contain  and  then  how  this  record  may  be  best  kept  for  ready  use. 
We  have  mentioned  the  average  balance  and  as  this  is  what  the 
customer  does  for  the  bank,  we  retain  this  as  part  of  the  record. 
This  should  be  the  average  of  the  daily  balances  figured  and 
registered  for  monthly  periods.  The  bank  loaning  money  to  its 
customer  is  contributing  to  the  success  of  his  business  and  a 
record  of  the  amounts  loaned  and  the  fluctuations  in  the  loans 
should  be  a  matter  of  credit  department  record.  Inasmuch  as 
the  balances  are  figured  on  a  monthly  basis  the  loan  record  should 
be  kept  in  parallel  columns  and  so  reduced  to  a  monthly  record. 
In  order  to  measure  accurately  the  fluctuations,  the  high  and  low 


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BANK  CREDIT  DEPARTMENT  FUNCTIONS       2Z 

points  in  the  loans  for  each  month  should  be  recorded.  Loans  are 
often  of  two  kinds — direct  and  indirect,  direct  loans  being  the 
paper  or  notes  of  the  borrower  discounted  and  the  indirect  being 
the  notes  of  his  customers  rediscounted  by  him  w'ith  the  bank, 
hearing  his  endorsement,  and  on  which  he  is  contingently  liable. 
Therefore  a  record  of  both  the  direct  and  indirect  loans  should 
be  kept  because  in  both  instances  the  customer  is  getting  accom- 
modation from  the  bank  by  the  extension  of  credit  and  the  varia- 
tion and  scope  of  this  accommodation  should  at  all  times  be  in- 
stantly available  for  the  loaning  officers.  These  two  records 
will  disclose  what  the  bank  and  the  customer  do  for  each  other. 

A    CREDIT    RECORD    CARD    FOR    THE    BORROWER 

But  a  mere  history  of  the  account  as  to  what  has  been  done  is 
not  enough.  There  should  be  some  indication  on  the  record  as 
to  why  loans  were  granted  or  on  what  they  are  based.  This  in- 
volves some  sort  of  a  memorandum  taken  from  the  statement  (a 
full  discussion  of  which  comes  at  another  point),  perhaps  a  rec- 
ord of  collateral  pledged  and  certainly  a  memorandum  of  guar- 
anty on  file  or  endorsement.  There  should  also  be  a  memoran- 
dum of  the  kind  of  business  the  subject  name  is  engaged  in,  and 
if  a  corporation,  some  record  of  who  the  people  responsible  for 
its  running  may  be.  The  record  should  also  show  whether  or 
not  the  subject  has  an  established  line  of  credit  held  open  for  its 
use.  It  may  also  be  interesting  to  note  whether  there  is  a  ten- 
dency to  overdraw  or  whether  or  not  insufficient  funds  have  made 
it  desirable  to  return  checks  unpaid.  The  promptness  with 
which  a  company  takes  care  of  its  notes  or  whether  it  allows 
them  to  run  past  due  is  also  an  interesting  and  valuable  thing  to 
have  at  hand  when  talking  to  a  borrow^er  about  an  account. 


24  THE  BANKER'S  CREDIT  MANUAL 

Many  banks  keep  all  this  information  in  various  kinds  of  rec- 
ords, books,  cards,  sheets,  folders,  etc.  The  form  on  pages  25  and 
26  makes  it  possible  for  the  credit  manager,  or  loaning  officer  to 
have  all  this  information  and  sign-posts  immediately  available 
and  in  accurate  but  inconspicuous  form  whenever  he  may  be 
talking  to  a  borrower.  The  record  shown  runs  for  three  years 
on  one  side  of  a  card  and  the  back  holds  a  further  three  years. 
The  card  is  ruled  so  that  it  is  turned  over  on  a  horizontal  axis 
when  looking  on  the  reverse  side.  This  is  technically  known  as 
a  tumble  card  and  for  the  writer  it  has  proved  easier  and  more 
convenient  to  handle  than  a  card  where  the  top  is  the  same  on 
both  sides.  It  has  the  added  advantage  of  giving  a  new  top  edge 
for  fingering  after  three  years'  use,  which  in  cards  that  are  fre- 
quently used  is  a  decided  advantage. 

An  explanation  of  this  card  is  given  here  by  references  to  the 
letters  marked  on  the  card. 

A — The  name  of  the  individual,  firm  or  corporation. 

B — The  kind  of  business  engaged  in. 

C — The  business  address  of  the  subject,  sometimes  supplemented 
by  the  telephone  number  if  the  business  is  such  that  tele- 
phone calls  are  frequent. 

D — The  president's  full  name. 

E — The  vice-president's  full  name. 

F — The  secretary's  full  name. 

G — The  treasurer's  full  name. 

H — The  yearly  average  balances  for  the  four  years  previous  to 
the  record  carried  on  the  card  itself. 

I — The  date  on  which  a  statement  was  requested, 

J — The  date  on  which  the  statement  was  received.  This  is  not 
the  date  of  the  statement  itself,  but  the  day  on  which  the 
bank  received  it.     Over  a  number  of  years  this  indicates 


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BANK  CREDIT  DEPARTMENT  FUNCTIONS       27 

the  average  time  that  elapses  between  request  for  and  re- 
ceipt of  a  statement.  It  helps  to  know  this  when  talking 
to  a  customer  and  trying  to  hurry  along  a  statement  a 
little. 

K — Sometimes  it  is  l^etter  policy  to  have  some  officer  ask  for  a 
statement  and  to  hold  up  the  more  formal  request  from 
the  credit  department.  The  date  this  decision  was  made 
and  the  initials  of  the  officer  who  is  to  handle  the  case  are 
then  entered  on  the  card  in  this  space.  It  then  becomes 
the  duty  of  the  officer  to  get  the  statement  and  the  credit 
department  is  relieved  of  the  responsibility. 

L — The  amount  of  the  limit  of  credit,  or  the  credit  line,  is  entered 
at  this  point  together  with  the  date  the  line  was  made  and 
whether  or  not  it  is  straight,  endorsed,  guaranteed  or 
against  collateral,  or  to  cover  all  types  in  total. 

M — The  year  covering  the  statistics  up  to  the  double  heavy  rule 
to  the  right  is  entered  here.  The  dates  of  the  statements 
are  also  entered  in  this  space  over  the  columns  in  which 
the  figures  are  put. 

N — In  this  space  a  notation  of  the  net  worth  is  made.  This  is 
taken  from  the  statements  rendered  to  the  bank  by  the 
customer,  or  in  some  instances  from  an  agency  report. 
When  taken  from  an  agency  report  the  figures  are  written 
down  in  green  ink  to  keep  this  fact  l^fore  the  minds  of 
the  loaning  officers. 

O — The  total  debt  of  the  subject  is  entered  in  this  space.  It  in- 
cludes all  liabilities,  both  liquid  and  funded. 

P — The  margin  between  the  current  assets  and  current  liabilities 
is  entered  in  this  space.  The  full  explanation  of  these 
three  items,  their  derivation  and  importance  will  be 
brought  out  in  a  chapter  on  statement  analysis  at  a  later 
point  in  this  book.  In  these  and  all  other  entries  on  this 
card  the  cents  are  omitted  as  not  significant. 


28  THE  BANKER'S  CREDIT  MANUAL 


Q — In  this  space  is  entered  the  highest  point  reached  by  the  di- 
rect loan  for  the  month. 

R — This  space  is  used  to  indicate  the  lowest  point  reached  by 
the  direct  loan  for  the  month. 

S — Here  is  entered  the  highest  point  reached  by  the  indirect  loan. 
These  are  sometimes  called  rediscounts  by  customers. 

T — The  lowest  point  reached  in  the  month  by  the  indirect  loan 
is  entered  in  this  space. 

U — It  sometimes  happens  that  a  city  bank  sells  some  of  the  notes 
from  its  discount  ledgers  to  country  correspondents.  Once 
a  month  the  amount  of  any  name  so  sold  is  recorded  in 
this  space  in  green.  As  these  notes  are  of  course  sold 
without  recourse  there  is  no  legal  liability  but  there  is  a 
moral  responsibility,  and  it  has  often  been  deemed  w'ise 
to  have  some  indication  of  these  activities  recorded  on  the 
ready  reference  files  of  the  credit  department. 

V — At  times  the  maker  of  a  note  does  not  appear  at  the  bank  on 
the  day  of  the  maturity  of  the  note  and  the  note  runs  past 
due.  The  space  here  reserved  is  used  to  indicate  the  num- 
ber of  times  this  happens  and  is  shown  by  a  little  green 
check  mark.  A  goodly  number  of  such  marks  against  any 
name  show  pretty  clearly  habits  of  carelessness  that  react 
very  decidedly  against  any  one's  credit  standing. 

W — On  the  line  in  this  space  is  entered  the  average  monthly  bal- 
ance of  the  account. 

X — This  whole  column  is  used  for  memoranda  of  endorsers, 
guaranty  bonds  showing  amounts,  expiration  dates  and 
names  of  guarantors.  In  ordinary  cases  the  collateral  on 
collateral  loans  is  also  entered  in  this  space. 

Y — The  average  balance  for  the  year  is  figured  and  entered  in 
this  space. 

Z — It  sometimes  happens  that  an  account  is  so  run  that  balances 
are  not  sufficient  to  pay  checks.  Every  day  that  this  hap- 
pens a  little  red  mark  is  entered  in  the  average  bal- 


BANK  CREDIT  DEPARTMENT  FUNCTIONS      29 

ance  space  near  the  top.  This  happens  more  often  on  the 
accounts  that  are  not  borrowing  accounts  and  is  entered 
in  the  same  general  location  on  such  cards. 

With  a  record  like  this  before  him  any  officer  has  at  hand,  in 
condensed  form,  most  of  the  essential  points  of  contact  between 
the  customer  and  the  bank  and  is  in  a  position  to  transact  busi- 
ness quickly  and  without  much  display  of  lack  of  confidence.  A 
great  many  banks  have  all  of  this  information  on  a  number  of 
cards,  sheets,  or  in  folders,  but  the  compactness  of  this  record 
is  what  makes  for  its  greatest  effectiveness.  Banks  that  do 
not  care  for  such  a  card  can  adopt  parts  of  it  and  complete  their 
records  in  the  manner  that  will  l^est  suit  their  needs. 

These  cards  are  also  useful  for  a  quick  review  of  loans  by  a 
discount  committee  or  board  of  directors.  The  more  detailed 
information  needed  and  the  types  of  analysis  used,  such  as  com- 
parative analysis  sheets,  etc.,  will  be  discussed  in  succeeding 
chapters. 


CHAPTER  III 
Sources  of  Credit  Information 

The  securing  of  credit  information  of  a  reliable  nature  is  of 
course  one  of  the  most  important  functions  of  the  bank  credit 
man.  The  sources  from  which  a  credit  man  draws  his  informa- 
tion are  dual.  The  first  is  that  which  comes  from  the  borrower — 
internal;  and  the  second  is  comprised  of  all  kinds  of  information 
derived  from  outside  sources — external.  Even  though  intention- 
ally honest  the  first  of  these  sources  is  subject  to  a  bit  of  optimism 
that  must  be  counterbalanced  by  keen  analysis  and  judgment  on 
the  part  of  the  credit  man. 

THE    PROPERTY    STATEMENT 

The  first  and  basic  bit  of  information  that  the  bank  credit  man 
wants  from  his  customer  is  a  signed  property  statement.  Only  a 
few  years  ago  the  majority  of  borrowers  became  highly  indignant 
if  asked  for  a  statement  of  their  affairs.  This  was  a  tempera- 
mental relic  from  the  time  the  bank's  cashier  and  each  one  of  its 
customers  were  first-name  friends  and  the  credit  department  was 
contained  in  the  cranium  of  the  cashier,  to  live  and  die  with  him 
for  the  most  part.  But  in  the  present  it  is  more  nearly  the  rule 
that  all  companies  willingly  give  their  statements  to  their  bankers. 
In  fact,  we  have  about  progressed  into  the  second  stage  in  which 
the  banks  will  almost  universally  receive  statements  from  their 
customers  based  upon  an  independent  audit  by  a  firm  of  char- 

30- 


SOURCES  OF  CREDIT  INFORMATION  31 


/ 


tered  accountants.  It  is  so  general  a  custom  now  that  there  is 
little  or  no  difficulty  in  getting  statements.  It  becomes  more  a 
matter  of  routine  process  resolving  itself  into  the  problem  of  re- 
membering when  to  ask  for  a  statement  and  the  writing  of  a 
courteous  letter.  The  wise  borrower  no  longer  attempts  to  as-  • 
sume  a  haughtier-than-thou  attitude  but  is  eager  to  place  at  the 
disposal  of  the  bank  all  information  that  is  essential.  He  does 
this  because  the  function  of  service  has  come  to  l>e  recognized 
in  banking  circles.  The  bank  credit  man  who  is  awake  to-day 
and  realizes  that  he  is  a  producer  and  not  a  destroyer  prepares 
his  files  and  records  so  that  he  can  be  of  real  assistance  to  the 
borrower  by  putting  him  in  touch  with  valuable  information  re- 
garding his  business.  This  service  side  has  appealed  to  the  bor- 
rower and  he  no  longer  goes  to  the  banker  as  a  sort  of  father 
confessor  but  rather  as  an  advisory  partner. 

As  the  credit  statement  is  the  subject-matter  of  a  separate 
chapter,  the  further  discussion  of  the  form  it  should  take  and  its 
analysis  will  be  deferred  except  the  remark  that'  a  proper  analy-  "J 
sis  of  a  property  statement  is  probably  the  first  and  best  source 
of  credit  information.  This  is  true  except  where  the  statement 
is  false,  and  whenever  that  condition  exists  the' credit  man  is 
treading  in  a  quagmire  and  is  pretty  sure  to  come  out  w^ith  a  loss. 
In  this  connection  the  credit  man  should  walk  with  great  care. 
If  there  has  been  fraud  the  dishonest  debtor  should  be  made  to 
feel  the  full  force  of  the  law  and  should  under  no  circumstances 
be  forgiven  or  allowed  to  offer  a  compromise.  This  is  no  J 
more  than  an  ethical  stand  and  the  bank  credit  man,  whose  sole 
merchandise  is  credit  based  on  confidence  and  truth,  should  be 
most  insistent  that  confidence  and  truth  be  not  violated.  There 
have  been  banks  that  found  themselves,  among  a  host  of  credit- 


32  THE  BANKER'S  CREDIT  MANUAL 

ors,  the  only  ones  possessing  absolute  proof  of  dishonesty,  and 
which  have  steadily  refused  to  take  one  hundred  cents  on  the  dol- 
lar for  themselves  and  surrender  the  proofs  to  the  detriment,  or, 
rather,  preferment,  over  the  other  creditors.  In  the  long  run  it  is 
better  to  be  known  as  a  man  or  bank  that  takes  a  loss  coura- 
geously, gives  credit  reasonably  and  demands  honesty  invariably. 

THE    STATEMENT    REQUEST 

Success  in  getting  anything  one  wants  from  the  person  who 
has  it,  is  largely  a  matter  of  diplomacy.  The  request  for  a  state- 
ment which  a  bank  sends  out  can  be  worded  so  as  to  arouse  a 
spirit  of  antagonism  in  the  borrower,  and  it  can  be  so  worded  as 
to  place  him  in  a  reasonable  frame  of  mind  and  willing  to  co- 
operate quickly  and  gladly.  There  is  some  difference  of  opinion 
as  to  whether  the  request  for  a  statement  should  be  on  a  printed 
form  or  a  special,  fully  written  letter;  whether  it  should  be  actu- 
ally signed  or  whether  a  specimen  or  rubber  stamp  signature  will 
do.  If  the  idea  is  to  get  the  statement  with  the  least  friction  and 
the  greatest  cordiality,  then  the  closest  personal  form  of  letter  is 
surely  the  best  and  there  can  be  little  doubt  but  that  this  is  the 
straight  letter,  fully  typewritten,  not  printed  or  multigraphed, 
and  signed  manually  by  the  credit  man  or  an  officer.  When  a 
customer  is  giving  the  bank  the  full  details  of  his  business  it  is 
surely  not  too  much  for  the  bank  to  treat  the  matter  as  of  some 
importance  and  send  a  real  letter  without  the  earmarks  of  routine. 
Friendliness  always  Ijegets  friendliness  and  the  personal  touch 
helps.  As  a  matter  of  suggestion  the  following  letters  are  offered 
as  good  examples  of  letters  that  have  been  and  are  to-day  in  use 
by  some  progressive  banks.  Only  the  body  of  these  letters  is  sup- 
plied. 


SOURCES  OF  CREDIT  INFORMATION  33 

Dear  Sir  : 

The  custom  on  the  part  of  the  banks  to  ask  an- 
nually for  a  confidential  statement  from  customers, 
is,  we  believe,  conducive  to  the  best  interests  of  all 
concerned. 

Will  you,  therefore,  kindly  fill  out  the  enclosed 
blank,  giving  special  attention  to  the  questions  at 
the  foot  of  the  page,  and  return  it  to  us  as  soon  as 
possible  ?  It  is  important  also  that  the  statement  be 
signed  by  some  one  in  authority. 

Thanking  you  for  complying  with  our  request, 
Yours  very  truly, 

Cashier. 
Dear  Sir: 

In  the  revision  of  our  credit  files,  we  observe 
the  last  statement  we  have  from  you  is  over  a  year 
old  and,  that  our  records  may  be  more  complete, 
may  we  ask  that  you  furnish  us  with  figures  of  a 
more  recent  date  ? 

We  enclose  herewith  one  of  our  blank  forms 
and  would  appreciate  your  using  it,  filling  out  the 
same  as  completely  as  possible,  inserting  the  words 
*'No"  or  *'None"  where  you  have  no  other  answer. 
This  will  facilitate  making  our  comparisons  and  it 
also  conforms  to  the  requirements  of  our  finance 
committee. 

Thanking  you  for  your  courtesy  in  this  matter, 
we  are,  Yours  very  truly. 

Manager  Credit  Department. 


Gentlemen  : 

In  looking  over  our  files  we  notice  we  do  not 
liave  a  copy  of  your  latest  statement,  and  as  we 
are  anxious  to  keep  our  information  up  to  date, 


34  THE  BANKER'S  CREDIT  MANUAL 

may  we  thank  you  to  fill  in  the  enclosed  blank, 

showing  your  financial  condition  as  of  — . 

Thanking  you  in  advance  for  your  kindness  in 
this  matter,  we  are,  Very  truly  yours, 

Credit  Manager. 


Dear  Sir: 

The  last  statement  which  we  have  of  your  com- 
pany is  dated .  It  is  of  decided  advan- 
tage to  both  your  company  and  the  bank  that  our 
files  be  kept  up  to  date  in  every  resi^ect  so  that  we 
may  more  fully  serve  you  by  being  at  all  times 
well  informed  concerning  the  progress  of  your 
company. 

Will  you  kindly  fill  out  the  enclosed  form,  as 
of  your  last  inventory  date,  and  return  it  to  us  as 
soon  as  convenient  ?         Very  truly  yours, 

Manager  Credit  Department. 


STATEMENTS  AND  THE  FEDERAL  RESERVE  BANKS 

A  new  phase  has  come  into  the  question  of  giving  statements 
and  that  is  the  attitude  of  the  Federal  Reserve  Banks.  Redis- 
counting  with  them  is  limited  to  rediscounting  notes  that  have 
been  issued  for  commercial  purposes,  and  to  determine  this  the 
Federal  Reserve  Banks  need  statements.  Taking  advantage  of 
this  the  writer  has  prepared  a  simple  folder,  explaining  the  atti- 
tude of  the  Federal  Reserve  Banks,  which  is  enclosed  in  every 
statement  request  leaving  his  department.  It  has  proved  suc- 
cessful as  it  appeals  to  the  borrower's  natural  desire  to  be  classed 
with  the  choice  or  best  risks.  It  has  brought  statements  from 
delinquents  and  in  several  instances  has  brought  the  heads  of 
business  into  the  bank  with  their  statements  and  a  desire  to  ex- 


STATEMENTS 


Eligibility  for  Rediscount 


WITH 


FEDERAL  RESERVE  BANKS 


THE; 


Rational  Rank  of  (][ommerc 


OF  DETROIT 


35 


Rediscounting 

The  Federal  Reserve  Banking  System  started 
a  new  era  in  banking  practice  in  this  country. 
It  has  made  it  possible  for  banks  to  rediscount 
in  an  orderly  and  acceptable  way.  such  notes 
as  they  may  have  which  meet  the  requirements 
of  the  law  and  the  regulations  of  The  Federal 
Reserve  Board,  made  under  authority  of  the 
law. 

Every  merchant  should  be  informed  of  the 
law  and  regulations  covering  rediscounts  by 
banks  so  that  he  may  put  the  paper  of  his  com- 
pany in  the  class  eligible  for  rediscount  with 
the  Federal  Reserve  Banks.  As  the  system 
grows  it  is  almost  certain  those  names  that  are 
known  to  be  eligible  for  rediscount  will  be 
considered  the  prime  names. 

The  following  quotation  from  the  regula- 
tions of  1917,  issued  by  the  Federal  Reserve 
Board  describes  the  character  of  paper  that  is 
subject  to  rediscount  by  the  Federal  Reserve 
Bank: 

"The  Federal  Reserve  Board,  exercising  its 
statutory  right  to  define  the  character  of  a 
note,  draft,  or  bill  of  exchange  eligible  for  re- 
discount at  a  Federal  Reserve  Bank,  has  deter- 
mined that : 

(a)  It  must  be  a  note,  draft,  or  bill  of  ex- 
change the  proceeds  of  which  have  been  used 
or  are  to  be  used  in  producing,  purchasing, 
carrying  or  marketing  goods  in  one  or  more 
of  the  steps  of  the  process  of  production,  man- 
ufacture, or  distribution. 

(b)  It  must  not  be  a  note,  draft,  or  bill  of 
exchange  the  proceeds  of  which  have  been 
used  or  are  to  be  used  for  permanent  or  fixed 
investments  of  any  kind,  such  as  land,  build- 
ings, or  machinery. 

(c)  It  must  not  be  a  note,  draft,  or  bill  of 
exchange  the  proceeds  of  which  have  been 
used  or  are  to  be  used  for  investments  of  a 
purely  speculative  character. 

(d)  It  may  be  secured  by  the  pledge  of 
goods  or  collateral,  provided  it  is  otherwise 
eligible." 

The  Federal  Reserve  Bank  of  Chicago  has 
ruled  that  all  paper  offered  for  rediscount,  by 
its  members,  must  be  accompanied  by  a  state- 
ment of  assets  and  liabilities  if  the  amount  of 
the  note  is  in  excess  of  $5,000.  This  informa- 
tion is  treated  in  a  most  confidential  manner, 
as  The  Federal  Reserve  Banks  never  under 
any  circumstances  discuss  credit  information 
with  any  bank  except  the  bank  supplying  the 
information.  The  following  is  the  form  used 
by  the  Federal  Reserve  Bank  of  Chicago  in 
securing  the  information  upon  which  they  base 
their  judgment  as  to  the  eligibility  of  the  note. 


CREDIT  STATEMENT 


(To  be  attached  to  Each  Note 
Offered  for  Rediscount.) 


Commercial  or  Industrial 


TO  THE 

FEDERAL  RESERVE   BANK  of   Chicago 

Name 

Address 

Business 

Date  of  last  statement 

ASSETS  : 

Cash  on  hand $ 

Bills  and  Accounts  \ 

Receivable  —  good  J  $ 

Merchandise — good $ 

Real  Estate  and    'I 

Buildings  J  $.... 

Other  Assets $ 

Total $ 

LIABILITIES  : 

Bills  Payable $ 

Accounts  Payable $ 

Mortgage  or    \ 

Bonded  Debt  J  $ 

Other  Liability $ 

Capital $ 

Surplus  and  Profits $ 

Total $ 

Contingent  Liability $ 

Annual  Business $ 

Profit  Last  Year $ 

Loss  Last  Year $ 

Purpose    for    which 

this  loan  was  made    ) 

Bank 

Cashier 


36 


SOURCES  OF  CREDIT  INFORMATION 


37 


plain  personally  some  things  they  feel  might  be  obscure.  Inci- 
dentally the  statement  forms  used  by  the  writer  carry  at  the  head 
of  the  balance  sheet  the  caption  in  red  lettering,  'This  form  of 
statement  approved  by  the  Federal  Reserve  Bank."  This  in  itself 
helps  the  borrower  to  feel  both  the  justice  and  the  advantage  of 
giving  a  statement. 

REMEMBERING    TO    ASK    FOR    STATEMENTS 

THE    STATEMENT    TICKLER 

It  being  a  fixed  policy  then  to  request  statements  at  regular, 
periods,  it  becomes  a  necessity  to  have  available  a  tickler  system 
of  some  kind.  The  following  card,  in  three  by  five  size,  is  a  com- 
posite made  up  from  and  combining  several  forms  that  have  come 
under  the  writer's  observation. 


■ 

• 

DATE  WHEN  REQUESTED 

1916 

1917 

1918, 

1919 

1920 

1921 

1922 

1923 

1924 

1925 

1926 

1927 

DATE  OF  STATEMENT                               | 

3S  THE  BANKER'S  CREDIT  MANUAL 

On  top  of  this  card  the  name  of  the  company  is  entered,  and 
the  address,  sometimes  the  name  of  the  individual  officer  to 
whom  the  statement  is  to  be  forwarded.  In  the  year  column 
under  the  heading  is  entered  the  date  on  which  a  request  is  mailed. 
The  card  is  then  filed  in  an  alphabetical  file  under  the  caption 
"Statements  asked  for  but  not  yet  received."  At  regular  inter- 
vals the  credit  manager  looks  over  these  cards  and  sends  a  second 
or  third,  and  generally  terser,  request  for  desired  information. 
If,  after  several  requests  at  reasonable  intervals,  no  statement  is 
forthcoming,  the  next  maturity  date  is  noted  and  a  notice  may  be 
sent  asking  for  the  payment  of  the  loan  or  a  reason  wh}^  no  state- 
ment has  been  sent.  This  leads  generally  to  an  interesting  inter- 
view. When  a  statement  is  received  its  date,  not  the  receipt  date, 
is  entered  on  the  card  under  the  heading  "Date  of  statement"  and 
the  card  is  filed  in  a  monthly  index  section  under  the  caption 
"Statements  Received."  Cards  for  statements  due  in  months  yet 
to  come  are  filed  in  a  monthly  index  section  under  the  caption 
"Statements  not  yet  due."  The  first  of  each  month  the  cards  for 
that  month  are  reviewed  and  disposition  of  them  is  made,  requests 
being  sent  or  held  for  a  time  as  is  decided  best  and  wisest  in  each 
instance.  When  the  date  of  a  statement  has  been  put  on  a  tickler 
card  this  matter  is  checked  by  the  clerk,  who  has  handled  the 
transaction,  initialing  the  statement  itself  on  the  upper  left-hand 
corner,  and  no  statement  is  analyzed  until  so  initialed.  This 
makes  the  record  complete  and  reduces  mistakes  to  a  minimum 
and  places  responsibility  where  it  belongs. 

THE    PERSONAL    CREDIT    INTERVIEW 

^      Next  in  importance  to  the  statement  is  the  personal  interview. 
There  are  many  people  who  hesitate  to  fill  out  questions  on  a 


SOURCES  OF  CREDIT  INFORMATION  39  '' 

printed  form  who  will  talk  freely  in  an  interview  and  give  a  great 
mass  of  detailed  information  that  can  be  secured  in  no  other  way. 
In  this  connection  a  questionnaire  or  printed  memoranda  pad  may 
be  very  convenient  to  take  down  such  information  as  applies  to 
new  loans.  This  formal  memorandum  is  the  subject-matter  of  a 
discussion  in  the  chapter  on  the  discount  committee  and  sugges- 
tions concerning  its  use  w^ill  be  found  there. 

Another  and  very  important  source  of  information  is  the  plant  : 
of  the  company  itself.  An  actual  visit  to  the  plant  will  make  the 
statement  much  more  understandable  and  the  explanations  given 
in  an  interview  much  more  valuable.  Whenever  it  is  possible  a 
visit  to  the  plant  or  place  of  business  is  very  much  to  be  desired. 
The  personal  impartial  examination  often  eliminates  a  great  deal 
of  the  optimism  that  the  personal  ideas  of  the  managers  of  the 
business  inject  into  their  remarks  or  statements. 

With  the  statement,  the  interview  and  the  visit  to  the  plant, 
the  credit  man  has  about  all  of  the  information  that  he 
can  get  direct  from  the  management  itself.  After  securing  and  ■* 
assimilating  the  internal  information  on  any  specific  risk  the 
credit  man  should  extend  his  investigation  into  the  external 
sources  where  he  often  gets  the  most  suggestive  information — 
the  other  man's  idea. 

COMMERCIAL   AGENCIES 

The  most-used  and  most  highly-developed  outside  source  of  in- 
formation is  the  commercial  agency.  In  brief  there  are  three  gen- 
eral agencies:  the  national  agency  reporting  on  all  kinds  of  busi- 
ness, the  national  agency  limiting  Its  service  toone  line  or  kindred 
lines  of  trade  and  the  local  agency  covering  more  often  indi- 
viduals. 


40  THE  BANKER'S  CREDIT  MANUAL 

Of  the  national  general  type  R.  G.  Dun  &  Company  and 
Bradstreet's  are  the  most  generally  used  and  the  best  established. 
Other  agencies  have  sprung  into  existence  attempting  work  on 
a  national  scope  and  reporting  all  lines  of  industry.  These  two, 
however,  have  the  advantage  of  having  started  when  our  indus- 
trial life  was  not  as  complex  as  it  is  now  and  have  grown  in  ex- 
perience and  scope  as  industries  themselves  have  grown.  It  is  not 
impossible  that  another  great  reporting  agency  may  develop,  but 
to  date  these  two  may  be  held  in  a  class  by  themselves. 

The  service  of  these  agencies  begins  with  the  issuance  of  a 
book  that  lists  active  business  concerns  according  to  their  capital 
rating,  or  on  the  net  worth  basis,  and  also  classifies  them  accord- 
ing to  their  manner  of  meeting  payments.  These  books  are  re- 
vised four  times  a  year  and  are  no  doubt  of  service  to  manufac- 
turing companies  and  jobbers.  Their  ratings,  however,  are,  of 
course,  based  on  statements  received  from  the  companies  rated, 
of  which  the  bank  has,  or  should  have,  copies  in  their  own  files, 
when  interested  in  a  credit  way  in  any  particular  name.  The 
rating  books  are  also  more  or  less  obsolete  by  the  time  they  reach 
the  banker's  desk  simply  because  of  the  length  of  time  necessary 
to  revise  and  print  them.  However,  they  form  some  sort  of  a 
starting  point  on  a  new  name  and  can  be  used  to  a  certain  degree 
as  a  check  against  the  credit  man's  judgment.  This  is  so  because 
the  agency  supposedly  depreciates  values  and  takes  a  conserv- 
ative stand. 

The  special  reports,  however,  that  these  agencies  issue  contain 
much  of  value.  They  usually  have  a  pretty  fair  antecedent  his- 
tory of  the  company  and  some  word  about  the  ability  and  integ- 
rity of  the  management.     It  surely  is  valuable  to  have  the  past 


SOURCES  OF  CREDIT  INFORMATION  41 

history  of  a  company  and  especially  the  past  histories  of  its  exec- 
utives. This  is  one  of  the  main  things  the  special  reports  get  for 
the  credit  man. 

Another  thing  these  reports  do  is  to  supply  a  number  of  trade 
opinions.  Sometimes  these  lead  to  very  interesting  information, 
but  in  many  instances  they  are  too  much  colored  by  the  borrower 
himself.  As  a  matter  of  routine  the  trade  reporter  asks  the  sub- 
ject for  trade  references  and  naturally  enough  the  subject  al- 
ways refers  to  such  houses  as  he  has  been  prompt  with,  forget- 
ting to  mention  any  with  whom  he  may  have  been  slow  or  had 
trouble.  For  this  reason  trade  references  must  be  read  with  a 
grain  of  caution,  and  if  any  source  of  buying  that  would  seem 
logical  has  not  been  mentioned  the  credit  man  himself  should 
inquire  and  perhaps  unearth  the  slow  record. 

Both  agencies  supply  inquiry  tickets,  which  should  be  carefully 
filled  out,  and  if  there  is  any  special  feature  the  credit  man  wants 
covered  it  is  well  to  make  a  note  of  it  on  the  inquiry  ticket.  It  is 
also  well  to  make  these  tickets  in  duplicate,  retaining  one.  The 
duplicate  should  be  so  filed  that  it  will  come  to  the  credit  man's 
attention  in  a  reasonably  short  time,  and  if  the  report  has  not 
been  received  a  second  request  or  a  delinquent  ticket  can  be  sent 
to  the  agency.  A  good  way  is  to  file  these  duplicates  in  an  alpha- 
betical file  and  make  it  a  point  to  look  over  them  all  on  some  cer- 
tain morning  each  week.  The  following  forms  show  the  tickets 
used  by  both  the  main  agencies  and  a  delinquent  report  form 
used  by  the  writer  to  stimulate  the  activity  of  the  agency.  This 
delinquent  ticket  should  be  sent  to  the  branch  manager  direct,  ad- 
dressed to  his  name,  and  printed  on  some  distinctly  colored  paper 
that  will  be  noticed. 


42  THE  BANKER'S  CREDIT  MANUAL 

SUBSCRIBERS  TICKET 


The  Mercantile  Agency, 


R,  G.  Dun  A  Co. 


Give  U8  In  confidence,  and  for  our  exclusive  use  and  benefit  in  our 
business,  viz.:  that  of  aiding  us  to  determine  the  propriety  of  giving  credit, 
information  respecting  the  standing,  responsibility,  etc.  of 

Name, 

Business, 

Street  &  No. 

Town,  

County,  — 

State, - 

Subscriber. 

J^'Subscribers  to  sign  the  above  themselves. 

Detroit,  Mich., 191 No 


It  costs  nothing  but  a  little  cordiality,  a  kindly  word  and  the 
time  to  talk,  to  get  one  of  the  reporters  from  these  agencies  to 
drop  in  once  in  a  while  and  tell  you  what  he  knows.  In  their 
trips  about  the  city  they  pick  up  a  deal  of  general  information 
that,  fitted  together  by  a  credit  man,  often  leads  to  important  dis- 
coveries. It  is  a  bad  plan  to  be  "too  busy  to  talk  this  morning," 
for  the  reporter's  friend  often  gets  the  news  first. 

The  special  agencies  operating  along  trade  lines  transact  their 
business  in  much  the  same  manner  as  do  the  general  agencies. 

Local  agencies  reporting  on  the  pay  habits  of  individuals  are 
a  very  important  source  of  information.  It  is  often  a  good  thing 
to  see  what  manner  of  man  may  be  running  a  business.    If  he  is 


SOURCES  OF  CREDIT  INFORMATION  43 

habitually  slow  personally  these  agencies  will  pick  up  this  infor- 
mation, and  men  of  bad  personal  habits  can  not  expect  to  be  the 
best  executives.     These  are,  perhaps,  straws,  but  they  are  im- 


Commercial  Inquiry 

DELINQUENT  TICKET 
On we  called  for  report  on 

This  has  not  yet  been  received  by  us  and 
we  would  ask  when  a  report  on  this 
name  may  be  expected. 


=THE: 


National  Rank  of  f.ommerce 


OF  DETROIT 


f\tM\t\r\l\ 


Name 

Address 

Business 

Requested 

Bradstreet  Dun  Interchange  Com'l.  Cr. 

Bank 

City 

This  request  for  credit  information  is  from 

The  National  Bank  of  Commerce  of  Detroit 
Kindly  use  due  diligence  so  as  to  secure  this  information  for  us  as 
soon  as  possible. 


For  general  agency  inquiries.     Folded  at  the  serrated  line  it  makes  possible 
a  carbon  copy  for  the  check-up  to  show  whether  a  report  has  come  in 


44 


SOURCES  OF  CREDIT  INFORMATION  45 

portant  straws  and  should  be  heeded,  as  should  the  reports  of 
the  larger  agencies. 

THE    INTERCHANGE    BUREAUS 

A  new  agency  which  is  advancing  rapidly  is  the  Interchange 
Bureau  of  the  National  Association  of  Credit  Men.  There  are 
some  seventy-odd  of  these  bureaus  operated  by  local  branches  of 
the  National  Association  of  Credit  Men.  Their  one  aim  is  to 
check  on  the  method  of  pay  by  means  of  cooperative  interchange. 
By  a  system  of  inquiry  sheets  and  reply  tickets  the  members  of 
these  bureaus  give  one  another  the  benefit  of  their  combined 
Jedger  experience.  The  member  wishing  to  get  the  experience 
of  the  other  m.embers  fills  out  an  inquiry  ticket,  giving  his  own  ex- 
perience in  advance.  The  form  on  page  47  shows  the  character 
of  this  ticket  and  the  information  given . 

The  names  coming  from  all  members  are  assembled  each  morn- 
ing on  a  sheet  and  the  complete  sheet  is  sent  to  every  member. 
See  form,  page  49. 

In  addition  to  sending  this  sheet  to  every  member,  a  copy  is  sent 
to  the  central  interchange  bureau,  where  a  card  record  is  kept 
showing  all  bureaus  interested  at  any  time  in  any  name.  By 
reference  to  this  card  index  the  central  bureau  can  tell  the  local 
bureau  where  people  selling  the  name  under  inquiry  are  located. 
This  makes  it  possible  to  secure  the  experience  of  every  member 
interested  from  any  bureau.  As  there  are  over  ten  thousand 
members  in  this  system  it  can  readily  be  seen  that  a  very  great 
deal  of  information  can  be  gathered  in  this  manner.  It  has  the 
advantage,  too,  of  being  information  from  people  interested  but 
not  referred  to,  and  its  percentage  of  slow  pay  uncovered  is  ahead 
of  the  referred  method  by  a  substantial  margin. 


46  THE  BANKER'S  CREDIT  MANUAL 

When  the  information  is  in  it  is  put  on  to  an  assembly  sheet 
and  every  one  who  has  contributed  to  its  compilation  is  supplied 
with  a  copy.  On  page  51  is  a  reply  ticket  for  the  individual  inter- 
ested, and  on  page  53  a  specimen  of  the  assembly  sheet : 

If  the  member  is  in  a  hurry,  and  so  states,  advance  reports 
may  be  sent  him  supplemented  at  last  by  the  complete  report. 
This  speeds  up  the  information  and  gets  more  rapid  action. 

Banks  have  another  means  of  getting  information  that  is  not 
as  readily  available  for  commercial  houses.  This  is  in  a  manner 
like  the  interchange  bureaus,  only  it  comes  from  very  direct  clues 
and  brings  accurate,  as  well  as  speedy,  returns.  This  is  known  as 
trade-checking  the  customer. 

TRADE-CHECKING   THE    CUSTOMER 

As  the  method  of  pay  is  a  most  interesting  and  instructive  in- 
dication of  the  risk  it  behooves  the  bank  credit  man  to  apply  this 
test  at  times.  It  is  rather  ineffective  to  ask  the  borrower  for  a  list 
of  references,  because,  as  already  stated,  those  given  are  the  best. 
The  bank  credit  man  has  an  excellent  method  of  getting  ref- 
erences. It  is  an  easy  matter  to  have  some  one  watch  the  check 
files  and  discover  to  whom  any  customer  has  been  paying  money. 
By  making  more  or  less  regular  inspections  of  the  files  a  bank 
credit  man  .can  build  up  a  fine  list  of  references  on  any  name  he 
may  wish  to  trade-check.  This  is  not  a  special  list  to  whom  good 
payment  has  been  made,  but  is  a  general  list  with  a  pretty  good 
chance  of  shaking  down  the  adverse  opinion  along  with  the  good. 

There  are  two  ways  of  using  this  list,  one  direct  and  the  other 
indirect.  In  the  first  the  bank  sends  a  letter  direct  to  each 
name  on  the  list.  In  the  second  the  bank  asks  some  agency 
to  trade-check  the  list  for  him,  thus  concealing  the  bank's  iden- 
tity.    The  first  method,  while  it  may  bring  more  direct  returns 


SUBSCRIBER'S  INQUIRY   TICKET 

Date No 


Interchange  Bureau 

DETROIT    ASSOCIATION    OF    CREDIT    MEN 

1031  Dime  Rank  Roildin^ 

Telephone  Main  4778 


Please  secure  report  on : 

Name 

Street  No Business- 
Town. State 

Formerly  at — 

Also  uses  style «... ~ — 

Successor  to. .^ 

OUB  EXPERIENCE  I 
AMOUNTS  IN  DOLLARS  ONLY 


1  If  first  order,  give  amount  $ 2  How  long  sold 

3  Amount  of  unfilled  orders   $ 4  Highest  credit  within  past  year  $. 

(Open  Account  $. (Open  Account  $ , 


5  Owing  "j  6  Past  Due  -j 

(Notes  $ (Notes  $ 

MANNER  OF  PAYMENT  AND  COMMENTS 

Place  X  in  front  of  answer 

Q  Discounts  D  C.  O.  D.  or  cash  D  In  attorney's  hands 

D  When  Due  D  Secured  D  Collected  by  attorney 

D  *Slow days  D  Makes  unjust  claims  Q  UncoHectible 

Q  Settles  by  note  D  Unsatisfactory  Q  Declined  order 

*On  slow  accounts,  state  number  of  days, 

NAMES  OF  HOUSES  KNOWN  TO  BE  INTERESTED 
Name Town 


Remarks. 


47 


DAILY  INQUIRY  SHEET 

•• 

INTERCHANGE  BUREAU 

Detroit  Association  of  Credit  Men                                       | 

917-918   DIME   Bank  building.   Main  4778 

When  reporting  on  names  listed  below  use  the  SUBSCRIBER'S  REPLY  TICKET  ONLY.     FiU  in  at  top  of  form,  the          I 

NUMBER  of  NAME  reported  on  and  DATE  of  the  LIST. 

CAUTION—Use  great  care  in  getting  the  NUMBER  and  DATE  CORRECT,  as  this  is  our  ONLY  nvans  of  idwitification. 

Give,  in  confidence,  per  rules  of  the  Bureau,  your  experience  vnth  and  indebtedness  of  parties  named  below. 

Please  examine  this  sheet  and  mail  your  comments  on  "names*'  interested  in. 

at  once. 

JUNE  5,   1918 

DETROIT 

. 

*58 

W.   W.   BARTLETT 

323  BROOKLYN  AVE. 

GROC. 

59 

WM.   BURMSTEIM 

1458  MICHIGAN  AVE. 

G.D.   &  NOT'S 

■60 

SAM  COHEN 

322  MICHIGAN  AVE. 

GROC. 

*61 

COMSTRUCTIOIJ   SERVICE  CO. 

62  MCGRAW  BLDQ 

REAL  ESTATE 

•62 

EMERSON  MPG.    CO. 

110  FREMONT  PL. 

MACHINISTS 

■'63 

FIDLER  BROS. 

262  MEDBURY  AVE. 

CONT.   &  MASON 

■^'64 

MARQUETTE  PRINTING  CO. 

MARQUETTE  BLDG. 

PRINTING 

65 

MICHIGAN   CLO.   GO. 

253   GRATIOT  AVE, 

*=66 

M.    B.    O'CONNOR 

400  PENOBSCOT  BLDG. 

PLB.   &  HTG 

fSUCC.    TO  O'CONNOR  BROS) 

67 

SCHWARTZ  &  SCHUPAH 

244  WOODWARD  AVE. 

-€Q 

SPRINGMAN   PAPER  PRODUCTS 

CO.    75  W.   LARNBD  ST. 

PAPER  PROD. 

69 

B.    A.    TIPPMANN 

2227  W.    JEFFERSON  AVE. 

JEWELER  &  WATCHMAKER 

70 

ISAAC  WAX 

1483  MICHIGAN  AVE. 

D.G.   &  NOT. 

ILLINOIS 

•71 

INDEPENDENT  PNEUMATIC   TOOL  CO.      CHICAGO 

PNEU.    TOOLS 

(THOR  BUILDING) 

INDIANA 

72 

RAY  FRUIT  CO. 

KOKOMO 

FRUIT 

MICHIGAN 

73 

N.    J.   LAiONDE 

ALPENA 

B.  &  S. 

*74 

BATTLE  CREEK  ROOFING  &  MFG.   CO.   BATTLE  CEF.F.K. 

ROOFING 

75 

ROLLA  DEHART 

BUTTERNUT 

76 

B.    H.  MERRILL 

GRANT 

(21N.    STORE 

77 

SOL  &  LEVIN   GITTLEMAN 

LAKEVIEir 

GEN.   STORE 

78 

BLYNN  &  WHITING 

PONTIAC 

GROC. 

OHIO 

79 

HARRY  M.    SLAUTER 

CLYDE 

CLOAKS  &  SUITS 

80 

KEATING  ELECTRIC  CO. 
(3249  MONROE  ST, ) 

TOLEDO 

£LBC. 

PENNSYLVANIA 

•81 

LKFi  F.    JONES 

ATHENS 

AUTO. 

Size  of  original  8%  x  125<^ 

49 


I 


SUBSCRIBER'S  REPLY  TICKET 


Interchange  Bureau 

DETROIT    ASSOCIATION    OF    CRBDIT    MEN 

1031  Dime  Bank  Baildin^ 

Telephone  Main  4778 


Name  No. Inquiry  Sheet  dated. 


1  If  first  order,  give  amount  $ ^ 2  How  long  sold v 

3  Amount  of  unfilled  orders    $ 4  Highest  credit  within  past  year  $.. 


! Open  Account  $ (Open  Account  $. 

6  Past  Due  ] 
Notes  $ ~.  (Notes  $. 


MANNER  OF  PAYMENT  AND  COMMENTS 

Place  X  in  front  of  answer 

D  Discounts  D  C.  O.  D.  or  cash  Q  In  attorney's  hands 

D  When  Due  D  Secured  D  Collected  by  attorney 

D  *Slow days  D  Makes  unjust  claims  D  Uncollectible 

Q  Settles  by  note  D  Unsatisfactory  Q  Declined  order 

*On  slow  accounts,  state  number  of  days. 

Make  comments  below,  either  by  using  the  number  on  the  card  of  comments  furnished 
by  the  Bureau,  or  your  own  expressions. 


Comments: 


If  a  copy  of  tabulated  report  is  desired,  check  Q 

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53 


SOURCES  OF  CREDIT  INFORMATION  55  '^ 

and  perhaps  more  personal  information,  is  open  to  criticism,  for 
the  customer  may  easily  ascertain  that  the  bank  is  checking  him. 
By  supplying  the  sources  for  checking  to  the  interchange  bureau 
and  asking  for  a  general  checking,  the  identity  of  the  bank  is 
merged  and  at  the  same  time  the  scope  of  the  inquiry  is  enlarged 
by  such  additions  as  the  interchange  bureau  may  uncover  from 
its  own  members. 

THE    PRESS 

In  addition  to  those  already  mentioned,  there  is  one  more  po- 
tent source  of  information,  and  that  is  the  press.  This  is  not 
limited  to  the  daily  papers,  although  they  have  considerable  wheat 
mixed  up  with  their  chaff.  It  includes  all  the  printed  matter 
dealing  with  business  and  business  conditions.  The  morning 
paper  has  many  sources  of  information  and  it  is  not  difficult  to 
run  through  it  and  pick  out  such  items  as  may  affect  one's  custo- 
mers. There  are  an  endless  numl^er  of  bank  magazines  dealing 
with  banking  as  a  science  and  containing  items  of  interest  per- 
taining to  business,  and  there  are  periodicals  restricted  to  special 
lines  of  trade,  so  if  a  bank  credit  man  has  a  large  line  of  business 
under  his  inspection  he  can  pretty  easily  find  some  section  of  the 
press  that  covers  that  particular  business. 

GENERAL    HEARSAY    AND    IMPRESSION 

And,  above  all,  remember  that  we  were  given  ears  to  hear,  i 
Idle  bits  of  conversation  on  the  street-cars,  bits  of  gossip  in  the 
clubs  and  the  conversation  of  clients  bring  much  to  the  surface 
that  the  active  credit  mind  fits  together  into  a  pretty  sound  credit 
fabric.  There  is,  of  course,  a  great  deal  that  must  be  discounted 
or  thrown  away,  but  there  is  a  vast  amount  that  can  be  learned.  -^ 


56  THE  BANKER'S  CREDIT  MANUAL 

Competitors  in  trade  often  know  a  great  deal  about  one  another, 
manufacturers  can  tell  many  things  about  jobbers  and  jobbers 
about  retailers.  To  all  of  these  things  the  credit  man 
must  keep  an  open  ear.  Some  men  have  clipping  books  on  dif- 
ferent topics.  One  very  successful  banker  and  Imsiness  man  of 
the  writer's  acquaintance  is  never  without  a  note-bock  in  which 
he  jots  down  memoranda  of  things  that  he  thinks  may  interest 
him  in  the  future.  His  collection  of  these  books  is  a  fairly  ac- 
curate history  of  his  business,  and  not  only  does  the  reading  of 
these  notes  help  him  to  remember,  but  the  mere  act  of  transcrib- 
ing them  fixes  many  things  in  his  mind  that  in  the  future  may 
prove  helpful  in  making  instant  decisions. 


CHAPTER  IV 

Statement  Forms  for  Borrowers 

The  securing  of  statements  as  a  part  of  bank  credit  routine  has 
become  an  accepted  fact  and  only  a  small  number  of  houses  com- 
paratively are  still  able  to  bank  on  their  record  and  ignore. the  just 
requests  for  real  information.  These  few  houses  are  largely  un- 
der the  control  of  business  men  of  the  older  generations,  and  as 
these  die  off  and  the  sons  and  grandsons  take  control  we  find 
an  increasing  spirit  of  American  fair-mindedness,  and  as  a  result  - 
a  better  understanding  between  bank  and  business  management. 
The  failure  to  issue  a  statement  is  an  indication,  at  least,  of  either  • 
old  fogyism  and  possibly  dry-rot  or  a  wariness  in  giving  figures 
that  may  disclose  an  unsound  condition.  The  absence  of  any 
statement  should  be  the  first  danger  signal  for  the  bank  credit 
man.  Sometimes  it  is  justified  because  the  officers  or  large  stock- 
holders endorse  or  guarantee  the  loan.  The  claim  is  set  forth 
that  this  makes  the  notes  good  because  of  the  standing  and  re- 
sponsibility of  the  men  themselves.  But  how  is  the  credit  man 
to  judge  any  more  accurately  of  this  responsibility  without  indi- 
vidual statements  than  he  could  of  the  company's  condition  with- 
out a  company  statement?  As  a  matter  of  fact,  most  men  would  - 
prefer  to  give  a  company  statement  and  eliminate  personal  state- 
ments, and  for  that  reason  company  statements  are  easier  to  get 
and  on  the  whole  they  are  much  more  desirable.  This  is  true  for 
two  reasons.  First,  because  company  statements  are  first-hand 
information,  and  secondly,  because  a  large  part  of  the  individual 

57_ 


58  THE  BANKER'S  CREDIT  MANUAL 

strength  will  probably  lie  in  the  investment  in  the  company  which 
can  not  be  determined  without  a  company  statement. 

STATEMENTS    OR    COLLATERAL 

r  In  the  mind  of  the  writer  the  only  sound  alternative  for  the 
issue    of   a    statement    is   the   providing  of  collateral  of  an  ac- 

'  ceptable  type.  As  suggested  by  the  name,  collateral  loans  rest 
upon  the  pledge  of  some  security.  The  character  of  this  should 
be  such  that  its  marketability  is  a  known  quality  and  for  which 
there  is  a  known  market.  Some  collateral  loans,  so  called,  are 
really  capital  loans  because  of  the  fact  there  is  no  real  market 
for  the  security.  This  is  a  condition  that  should  be  guarded 
against  in  all  instances  by  the  credit  man  unless  policy  demands 
short  loans  for  the  developing  of  good  business.  But  as  a  general 
rule  the  market  and  the  marketability  establish  the  true  value  of 
the  collateral. 

STATEMENTS    AUDITED    AND    UNAUDITED 

Before  taking  up  the  statement  itself  there  is  one  further  point 
to  be  considered  and  that  is  the  difference  between  the  direct 
statement  of  the  company  and  the  statement  that  has  been  pre- 
pared by  the  certified  public  accountant.  While  the  direct  state- 
ment may  be  issued  with  perfect  honesty  it  is  still  subject  to  all 
the  optimism  of  the  management  which  has  created  the  credits 
that  go  to  make  up  the  accounts  and  bills  receivable,  and  it  is  no 
more  than  human  that  it  should  be  difficult  to  charge  these  down 
to  the  bone  and  get  absolutely  basic  values.  This  same  condition 
maintains  in  the  other  features  of  the  statement,  such  as  inven- 


STATEMENT  FORMS  FOR  BORROWERS  59 

tory,  machinery,  fixtures,  etc.  On  the  other  hand  the  chartered 
accountant  is  not  influenced  by  any  of  this  personal  element  and 
sets  up  reserves  or  makes  depreciations,  without  bias,  designed  to 
bring  values  down  to  a  true  level,  and  presents  a  statement  that  is 
made  up  on  impartial  judgment. 

While  the  audited  statement  eliminates  much  of  the  optimism 
from  receivables  and  usually  arranges  for  an  adequate  deprecia- 
tion of  plant,  one  other  feature  is  often  not  properly  cared  for. 
This  is  inventory.  Many  times  it  will  be  found  that  the  auditors 
have  taken  the  inventory  as  supplied  by  the  management,  and  if 
this  is  the  case  there  is  still  a  long  chance  of  there  being  old  mer- 
chandise on  hand  at  a  value  in  excess  of  the  real  present  value. 
This  may  or  may  not  be  with  intent  to  defraud,  because  too 
many  merchants  hope  to  realize  even  on  old  stuff,  or  can  not 
quite  bring  themselves  to  the  point  where  they  charge  off.  It 
is  just  another  of  the  optimistic  points  th^t  must  be  watched. 

TYPICAL   STATEMENT    FORMS    IN    USE 

Banks,  as  a  rule,  do,  and  as  a  matter  of  good  analysis  should, 
provide  a  form  of  statement  for  their  customers  to  fill  out.  There 
is  a  very  sound  reason  for  this.  By  supplying  forms  year  after 
year  the  bank  will  bring  about  a  more  nearly  uniform  and  there- 
fore more  readily  analyzed  set  of  figures.  Individual  firms  may 
make  radical  changes  in  their  books  and  if  left  to  their  own  de- 
vices each  statement  can  easily  be  presented  in  such  a  varying 
form  that  true  comparison  and  analysis  is  hampered.  There 
should  be  several  kinds  of  forms  designed  to  meet  the  main 
types  of  business.  There  are  generally  three :  individual,  firm 
and  corporation.     But  in  their  essentials  there  should  be  a  sim- 


1 


60  THE  BANKER'S  CREDIT  MANUAL 

ilarity  so  that  any  business  changing  from  one  style  to  another 
would  still  provide  information  of  a  like  kind. 

The  information  contained  in  such  a  statement  generally  starts 
with  a  notation  of  the  name,  the  type  of  business,  the  address, 
the  names  of  associated  branches  and  the  date  on  which  the 
figures  were  taken  from  the  books  and  presented  as  indicating 
the  condition  of  the  company  as  of  that  time.  This  is  followed 
generally  by  some  sort  of  a  declaration  concerning  the  real 
authenticity  of  the  statement  and  declaring  clearly  and  in  positive 
language  that  the  statement  is  a  true  and  honest  expression  of 
existing  conditions.  Sometimes  these  declarations  are  long  and 
'sometimes  short.  For  the  benefit  of  those  readers  who  may 
wish  to  insert  such  a  clause,  not  having  one,  or  who  may  wish 
to  revamp  one  in  existence,  or  who  may  merely  want  to  know 
what  the  other  fellow  is  doing,  several  of  these  clauses  are  in- 
serted at  this  point.  They  are.  quoted  from  forms  actually  in 
use.  It  is  to  be  presumed  that  they  have  been  drafted  by,  or  at 
least  approved  by,  the  attorneys  of  the  banks  using  them,  and 
for  that  reason  they  should  serve  as  good  guides.  However,  any 
clause  so  used  should  be  passed  on  in  every  instance  by  the  bank's 
lawyers  so  as  not  to  injure  the  negotiability  of  notes  issued  un- 
der its  restrictions,  and  still  be  as  protective  as  possible.  Several 
clauses  are  here  introduced : 

"For  the  purpose  of  procuring  credit  from  you  from  time  to 
time,  direct  or  otherwise,  I  herewith  submit  the  following  true 
and  accurate  statement  of  my  resources  and  liabilities,  as  shown 
by  my  books  on  . 

'Tn  consideration  of  the  granting  of  such  credit  I  agree  that 
should  I  make  a  bill  of  sale,  a  mortgage  or  other  transfer  of  a 
considerable  portion  of  my  property,  without  notice  to  you,  or 


STATEMENT  FORMS  FOR  BORROWERS         61 

should  my  stock  be  attached,  or  should  I  make  an  assignment 
for  the  benefit  of  my  creditors,  or  should  a  petition  in  bankruptcy 
be  filed  by  or  against  the  company,  then  all  and  every  claim  you 
have  against  me  shali  become,  at  your  option,  immediately  due 
and  payable." 


"P^or  the  purpose  of  procuring  credit  from  above  bank  from 
time  to  time  for  my  negotiable  paper  or  otherwise,  I  furnish  the 
following  as  a  true  and  accurate  statement  of  my  financial  con- 
dition on ,  19 — ,  which  may  hereafter  be  con- 
sidered as  representing  a  true  statement  of  my  financial  condition 
unless  written  notice  of  change  is  given  to  you. 

'Tn  consideration  of  the  granting  of  such  credit,  it  is  hereby 
agreed  that  in  case  of  the  failure  or  insolvency  of  the  under- 
signed, all  obligations  of  the  undersigned  held  by  said  bank 
shall  become  immediately  due  and  payable." 


''For  the  purpose  of  procuring  credit  from  you,  direct  or  other- 
wise, we  furnish  the  following  as  a  true  and  complete  statement 
of  our  financial  condition,  as  shown  by  our  books  on ." 


'Tor  the  purpose  of  procuring  credit  from  time  to  time  with 
you  for  our  negotiable  paper  or  otherwise,  we  furnish  the  follow- 
ing as  a  true  and  accurate  statement  of  our  financial  condition 
on ,  19 — .  We  agree  to  and  will  notify  you  im- 
mediately in  writing  of  any  materially  unfavorable  change  in  our 
financial  condition,  and  in  the  absence  of  such  notice  or  a  new 
and  full  written  statement,  this  may  be  considered  as  a  continuing 
statement  and  substantially  correct;  and  it  is  hereby  expressly 
agreed  that  upon  application  for  further  credit,  this  statement 
shall  have  the  same  force  and  effect  as  if  delivered  as  an  original 
statement  of  our  financial  condition  at  the  time  such  further 
credit  is  requested." 


62  THE  BANKER'S  CREDIT  MANUAL 

"To  the  Blank  Bank : 

'Tor  the  purpose  of  procuring  and  estabh'shing  credit  and  in- 
ducing said  bank  from  time  to  time  to  make  loans  or  discounts  to 
or  in  behalf  of  the  undersigned,  the  undersigned  hereby  fur- 
nishes the  following  and  cert'ifies  that  the  same  is  a  true  and 
correct  statement  of  the  financial  condition  of  the  undersigned 

on  the day  of ,  19 — ,  and  hereby  agrees, 

in  consideration  of  the  granting  of  any  credit  by  said  bank  to  the 
undersigned,  as  follows : 

"(1)  If  the  assets  of  the  undersigned  appearing  on  the  follow- 
ing statement  shall  at  any  time  be  materially  reduced  or  changed, 
or  the  liabilities  on  said  statement  are  materially  increased,  or  the 
ability  of  the  undersigned  to  pay  all  claims  and  demands  against 
the  undersigned  according  to  the  purport  and  tenor  thereof  is 
diminished,  the  undersigned  will  immediately  notify  said  bank 
to  that  effect. 

*'(2)  In  case  any  change  shall  take  place  in  the  assets  or  lia- 
bihties  of  the  undersigned,  as  aforesaid;  or  in  case  of  the  failure 
or  insolvency  of,  or  the  institution  of  any  insolvency  proceedings 
against  the  undersigned;  or  in  case  it  shall  appear  at  any  time 
that  any  of  the  statements  or  representations  hereinafter  made 
are  untrue;  or  in  case  any  claims  of  said  bank  against  the  under- 
signed shall  not  be  paid  at  the  time  and  in  the  manner  when  due 
and  payable;  or  in  case  the  undersigned  shall  refuse  at  any  time, 
at  the  request  of  said  bank,  to  furnish  any  additional,  or  supple- 
mental statement  of  the  business  or  financial  condition  of  the 
undersigned  in  such  form  as  said  bank  may  require;  or  in  case 
any  judgment  shall  be  entered  or  attachment  issued  at  any  time 
against  the  undersigned,  or  in  case  any  change  shall  occur  which, 
in  the  judgment  of  said  bank,  shall  materially  reduce  or  change 
the  assets  or  increase  the  liabilities  of  the  undersigned,  or  affect 
the  ability  of  the  undersigned  to  pay  all  dernands  as  and  when 
payable,  then,  and  on  the  happening  of  any  of  these  events,  at 
the  option  of  said  bank,  all  the  indebtedness  of  the  undersigned 


STATEMENT  FORMS  FOR  BORROWERS         63 

shall  become  due  and  payable  forthwith,  and  all  obligations  of 
the  undersigned  shall  therefore  immediately  mature  and  accrue, 
anything  in  the  notes  or  other  obligations  held  by  said  bank  to  the 
contrary  notwithstanding. 

*'(3)  Said  bank  shall  have  the  right  at  any  time  to  apply  any 
balance  standing  to  the  credit  of  the  undersigned  on  the  books  of 
said  bank  in  payment  of  the  indebtedness  for  which  the  under- 
signed may  be  liable  as  principal,  surety  or  otherwise. 

"This  statement  is  to  be  regarded  as  continuing  until  another 
statement  in  writing  shall  be  substituted  in  its  place." 


It  can  now  easily  be  seen  that  the  range  of  this  declaration  is 
very  wide.  Some  banks  are  content  with  a  moderate  assertion 
of  the  fact  that  the  statement  is  true,  while  others  ask  for  a 
far  wider  declaration.  Each  type  fills  its  required  service  and 
the  adoption  of  one  or  the  other  depends  upon  the  needs  and  ex- 
perience of  the  bank  in  question  and  the  class  of  customers  it 
serves.  The  minuteness  and  extent  of  this  declaration  rests  to  a 
great  extent  upon  what  policy  the  bank  follows  and  the  closeness 
of  its  relation  to  the  people  to  whom  it  loans  money. 

Following  the  declaration  the  statement  forms,  as  generally  de- 
signed, arrange  for  the  listing  of  the  assets  and  liabilities,  a  short 
form  for  an  operating  statement  indicating  profits,  dividends, 
etc.,  and  then  from  one  to  two  pages  of  questions  intended  to 
bring  into  relief  the  salient  features  of  the  balance  sheet. 

These  forms  vary  in  almost  every  instance  in  spite  of  several 
attempts  to  standardize  the  statement  form.  This  attempt  at 
standardization  has  many  excellent  points,  but  the  active  credit 
mind  of  some  does  not  demand  or  feel  the  need  of  information 
that  to  others  may  seem  essential.  Actual  standardization  would 
mean  that  every  borrower  should  have  to  give  every  bank  exactly 


64  THE  BANKER'S  CREDIT  MANUAL 

the  same  information.  To  the  mind  of  the  statistician  this  would 
be  Utopia,  as  it  would  make  it  possible  to  make  comparison 
studies  on  a  tremendous  scale,  provided  the  securing  of  the  state- 
ments was  possible.  But  for  the  present  such  a  thing  is  un- 
likely and  the  unification  or  their, standardization  must  l)e  at  least 
limited  to  local  associations  of  banks  under  the  direction  of  local 
clearing  houses.  A  good  start  has  been  made  in  several  instances 
and  such  movements  should  be  encouraged  as  distinct  advances 
in  credit  technique. 

Inasmuch  as  there  is  no  standardized  form  of  statements  the 
writer  has  taken  several  very  good  forms  and,  with  the  con-sent 
of  the  banks  using  them,  has  printed  them  here  in  the  hope  that 
they  may  serve  as  guides  for  the  making  of  new  statement  forms 
or  the  revamping  of  forms  now  in  use.  Each  one  has  in  it  sug; 
gestive  material,  much  of  which  the  writer  has  adopted  in  design- 
ing his  ow^n  forms.  A  careful  study  of  them  will  do  much  toward 
credit  training  and  making  for  better  credit  granting. 


a: 
O 

CO 

5c 

CO 

D 


65 


US     i 


iuPPALO,  M  r.,. 


.19i^ 


n  the  BANK  or  BUFFALO. 


For  the  purpoM  of  procuring  credit  from  time  to  time  and  of  borrowing  money  and  obtaining  discounts  of  tfae 
Bank  op  Bufpauo,  the  undersigned  declare(»)  the  following  to  be  an  accurate  and  true  statement  of  the  undersigned's  financial  condition  on 


thfe- jday  of 

credit,  rely  upoi 


'  of  this 


understanding  that  the  officers  of  the  bank  in  granting  to  the  undersigned 


statement. 


Ifi 


ly  judgment  should  be  entered  against  the  undersigned,  or  upon  any  assignment  for  the  benefit  of  creditors,  or  act  of  bankruptcy, 
whether  voluntary  or  involuntary,  by  or  against  the  undersigned,  then  and  in  either  event  all  liabilities,  direct  and  contingent,  of  the  under- 
signed to  said  bank  ahali  become  immediately  due  and  payable  .lotwithstanding  any  credit  or  time  allowed  to  the  undersigned  by  any 
instrument  evideacing  any  of  the  said  liabilities.  In  the  event  of  euch  failure,  insolvency  or  bankruptcy  on  the  part  of  the  undersigned,  it  is 
hereby  agreed  and  understood  that  the  said  bank  may  make  and  prove  its  claim  against  the  iindersignwl  or  against  the  undersigned's  estate 
for  the  full  amount  of  the  undersigned's  liability  as  aforesaid,  receiving  dividends  thereon  and  holding;  any  collateral  or  other  property  in  its 
bands  at  that  time  belonging  to  the  undersigned  or  in  which  the  undersigned  has  any  interest  until  it  shall  be  ascertained  whether  or  not 
there  be  any  deficit.  In  case  of  any  deficit  the  said  bank  is  hereby  authorized  to  apply  all  or  any  part  of  any  such  collateral  or  property  or 
of  the  proc-eeds  thereof  toxvards  the  payment  of  such  deficit  with  interest  in  full,  accounting  to  the  undersigned  for  an>[  surplus.  It  is  further 
mgrecd  that  said  bank  shall  have  a  lien  upon  and  may  apply  as  an  offset  against- the  undersigned's  liability  as  aforesaid  any  balances  which 
may  be  standing  to  the  credit  of  the  undersigned  on  the  books  of  the  bank- 
It  is  further  agreed  that  these  presents  constitute  a  continuing  agreement,  applying  to  any  and  all  future,  a^  well  as  to  existing  trans- 
actions between  the  undersigned  and  said  bank. 


ASSETS. 

LIABILITIES. 

CAooHuhJ.                             $ 

$ 

Promissory  Notes  to  Banb  for  borrowed  money. 

Cash  in  Bank  o(  Buffalo. 

FromisMry  Notes  to  Individuals  for  borrowed  money. 

CaAb                 olherSanb. > 

Accounts  Payable,  for  borrowed  money. 

Good  Bills  Receivable     {S^n^^i^n^^^^i^l 

PromisBory  Notes,  for  MercKandise. 

Good  Open  Account.    i^'S^^iS^raSM^f 

Accounts  Payable,  for  Merchandise,  Not  due. 

^      j/-\_        A                    iMorethaalBoathtold.    Not) 
Good  Open  Accounts      1      tnuufencd  aor  Mtsnsd.       i 

Accounts  Payable,  for  Merchandise,  Past  due. 

Stock  in  trade,  at  cost. 

Another  liabilities  (rive  detaik) 

Total  qtiick  or  current  asKts  (without  Kens) 

Olbet  Assets  (give  detaS.) 

'     Due  from  Odcers.         '.' 
Paitnen  or  Enployeet,  J 

8:?ss.isrsu 

M..k;„«.n^R^e.. 

Real  Estate  as  per  Statement  on  oDDodte  oaae. 

Mortgages  as  per  Statement  on  oppoate  jMse, 

Total  Liabiiitie.. 

Net  Worth. 

TOTAL 

_ 

TOTAU 

REMARKS: 


Size  of  original  8^  x  10^ 


STATEMENT  OF  REAL  ESTATE  OWNED  BY 


(Actaefa  Sclicdoli  If  > 


n^ 


LOCAnON  AND  DESCRIPTION 
OF  PROPERTY 


OWNEirS  VALUE        OWNEIT*  VALUE  MORTGAGED 

OF  LAND  OF  BUILDINGS  FOR 


TOTAL, 


GENERAL    INFORMATION. 


(PLEASE  ANSWER  ALL  QUESTIONS;  If  oppoalte  any  question  no  figures  are  to  be  entered  the  word  NONE  ahould  be  written.) 


Notes  receivable  of  customers  discounted  or  told  and  not 


Figures  from  annual  Profit  and  Loss  Sheet  dated. 


included  in  assets  enumerated  in  statement  on  c^posite 
page. 


Annual  Sales,  for  fiscal  year. 


liability  on  other  paper  as  maker,  endorser  or  guarantor. 


(Salaries  and  withdrawals  of  officen  or 


Liability  on  contracts  to  purchase  plant,  machinery  xx 
real  estate. 


Charged  Off.  for  Bad  Debts. 


Have  any  long  time  leases  been  ngned  ? 


_  Are  you  surety  oa  any  bond  or  obligation  ? 


Chtfiwd  Offi  f«ff  Dgprwfftwffi. 


Dividends  Paid. 


If  a  co-partnership — amount  of  liability  of  partners  for 
individual  debts. 


AD  otlier  expenses  of  conducting  business. 


Do  you  anticipate  or  discount  your  bilk  > 


Net  Earnings  carried  to  surplus  or  capital 
SScount, 


Estimated  net  worth  of  officers  or  partners  outside  of 


Total  (Gross  Profit  for  Year). 


Stock  in  trade. 


If  a  GMf^AttSBT 
please  state 


CagialSt<xk(P«din). 


Insurance    (  Machinay  .and  Fixtures^ 


Surphis  or  Undivided  Profits. 


Jfature  of 
Busineit. ... 


LoetUion, 


/fame  and  Title  of 

eaeh  offlaert  or 

/fame  of  eaeh  member 

of  firm  in  full. 


E 


The  underwgned  do(et}  hereby  certify  that  aU  the  RESOURCES  which  are  included  in  this  sUtement.  sund  in  the  i 
name  and  that  no  part  of  such  resource*  is  covered  by  a  Bill  of  Sale.  Chattel  Mortgage  or  Lien  of  any  name  or  natoie.  or  in  any 
pledged  as  security  for  any  loon  or  debt,  except  as  stated. 


tign  here)- 


Size  of  original  8^4  x  10^ 


67 


^^:^t^ 


..Or<aaizcd  under  law*  of 


Chirtcr  expire 


i«  BOATMEN'S  BANK.  Se.  Louii.  Mo. 

For  your  information  and  guidance  ahould  the  aucation  of  our  reaponiibility  for  any  reason  aritc  in  the  courte  of  our  relation*  witli  you.  we  rorniah  the  followinl  aa  ■  true  aod 
«tc  auiement  of  thia  bank'a  financial  condition  on 19 


RESOURCES 


and    diacouata    undoubtedly    <ood,    peraonal 


iniu 

la  (odMr  thaa  V.  S.)  tad  Modu  at  mwrfcct  valm 


id  Stttea  booda 

liam  oa  United  State*  beada . 


tiag  houaa  — 

iturtandfi.ittiraa- 


;ka  and  other  caah  itema  - 

OB  hand  (carrcDcy  and  apccie).. 


from  United  Siaiea  Trcaaorer- 


IJABILITIES 

Due  to  baaka  aubjccl  to  check 

$ 

J 

Individual  depoaita  aubieet  to  eheek 

Demand  ccrtifieatea  of  depoait - 





Certified  chceka  and  oaahicr'a  checka .-. 

Time  eertifiealc*  of  depoait-— -... 





United  Sutea   depoaiu 

CireolatioB - 

Billa   payable „ 

Capital  - 

S-rpI"- 

Undivided  pro6la 













to  S 


ITINGBNT  LIABILITY:  Our  liability  on  <narantiea,  booda,  accommodation  endoraemcnia.  etc..  etc.. 

to  S — :  iud<menta  rendered  against  u*.  $ » 

iNS  TO  OFFICERS  AND  DIRECTORS:  Aad  io  firma  in  which  they  arc  intereatcd  avera<«. ««r  ccM  of  toul  of  our  loana  and  diacouola. 

nUATION  WITH  OTHER  BANKS:  Thron«l>  ioini  owacrahip  of  Mock,  by  ofieaiv.  dlrcetera  or  prioolpd  atockholdar*.  or  othanriaa,  w*  ar«  aSliatad  wfah 


Suite  pending  againat  uf  i 


SINBSS  OF  PRINCIPAL  BORROWERS:  - - 

KL  ESTATE  AND  BUILDINGS  OWNED:  Title  !a  la  aami 

Aaacaacd  at  S • .•' 

ST  FISCAL  YEAR'S  BUSINESS:  Bad  and  doubtful  loana  an 

and  were  diatributcd  (date] 

to  undMdad  pro6u  S 

JITAL:  Authorixad  $ - s  iaaued  $ 

HER  CORRESPONDENTS  ABE: 


Market  valae  U  $~... 

to$ 


All  ehm-ied  «ffP.. 

$ 


.•t  paid  ia:  ia  eaah  I . 


tOCekl  tUla  ID  be  <!v*a| 


L    SIM*, 


Size  of  original  8  x  10^ 


69 


onoANUco  uNDeN  ukwa  or 

B8ANCH  OFFICeS 
PLANT  LOCATED 


lAME 

i£AO  OFFICE  ADDRESS 

OSINESS 

ro  THE  BOATMEN'S  BANK.  St    LOu's.  MO 

FOB  THE  PURPOSE  OF  PROCURING  CREDIT  FROM    TIME    TO   TIME    WITH   VOU  FOR  OUK  MEOOTIAU.E   fAPER  O*   OTHERWISE.  WE  FURNISH  THE  FOLLOWING  AS  A  TRUE  AHO 
CCURATE   STATEMENT  OF  OUR  FINANCIAL   CONDITION  ON  l»  WE   AORE  £  TO  AND  WILL  NOTIFY  VOU  IMMEOIATELV  IN  WRITING  OF  AMV   MATERIALLY 

NFAVORABLE  CHANGE  IN  OUR  FINANCIAL  CONDITION.  AND  IN  THE  ABSENCE  OF  SUCH  NOTICE  OR  A  NEW  AND  FULL  WRITTEN  STATEMENT.  THIS  MAY  BE  CONSIDERED  AS  A 
ONTINUING  STATEMENT  AND  SUBSTANTIALLY  CORRECT;  AND  'T  iS  HEREBY  EXPRESSLY  AGREED  THAT  UPON  APPLICATION  FOR  FURTHER  CREDIT.  THIS  STATEMENT  SHALL 
AVE  THE  SAME  FORCE  AND  EFFECT  AS  IF  DELIVERED  AS  AN  ORIGINAL  STATEMENT  OF  OUR  FINANCIAL  CONDITION  AT  THE  TIME  SUCH  FURTHER  CREDIT  IS  REQUESTED. 


ASSETS 


LIABILITIES  AND  CAPITAL 


S  H..   ON   HAND  IN  BANK  TOTAL 

OTES   WCCEIVABLE   QUE   FROM   MPSE.  DEBTORS.  UN- 


DOUBTEDLY GOOD.    NOT   DUE   AND   NOT  TRANSFERRED 
ACCOUNTS   RECEIVABLE   DUE   FROM   MPSE.   DEBTORS. 


UNDOUBTEDLY  GOOD.   NOT  TRANSFERRED.  NOT  PAST  DUE 
ISTED  STOCKS  AND  BONDS  AT  MARKET  VALUE,   xot 

erchanoise:  finished   at  COST    $ 

UNFINISHED    AT  COST    t 
RAW  MATERIAL.  AT  COST     $ 


MERCHANDISE   TOTAL 


AND   ACCOUNTS     RECEIVABLE.   DUE   FROM 


STOCKHOLDERS.  OFFICERS.   EM  PLOVES.  ETC. 


NOTES  AND  ACCOUNTS  RECEIVABLE.  DUE  FROM 


BLANCHES  OR   SUBSIDIARY  CO  M  PANIES 


ANOOWNEP  AND  USED  FOR  THE  BUSINESS 


ILOINCS  OWNED  AND  USED  FOR  THE  BUSINESS 


MACHINERY  AND  FIXTURES.  CLEAR  OF  ALL  LIENS 


>THER     REAL    ESTATE 


THEW  ASSETS 


_rOT£j^ 


NOTES  PAYABLE  BfVEN  FOR  MERCHANDISE 

NOTES  PAYABLE  NEGOTIATED  TO  OWN    BANKS 

NOTES  PAYABLE   NEGOTIATED  THROUGH   BROKERS 

ACCOUNTS    PAYABLE   FOR   MERCHANDISE 

DEPOSITS    OF    MONEY  WITH  US 

LOANS   BY  OFFICERS.    STOCKHOLDERS.   EMPLOYES.   ETC. 


ACCRUED  LIABILITIES:  iNT    ON  BONDED  DEBT.  WAGES.   ETC 
01VIOENDS  DECLARED  BUT  NOT  PAID 
ALL  OTHER  ACCOUNTS  PAYABLE 


BONDED    DEBT.  DUE 

MORTGAGE   OR    LIEN    DEBT.  ON  LAND  AND  BUILOINOS 

CHATTEL  MORTGAGES  ON 

ALL   OTHER   LIABILITIES 


SAPITA^ 

UWPIVIOED  PROFITS 
RESEWVCf  ilTEMIZEh 


TOTAL  UASlLITieS 


TOTAL 


VHAT  AMOUNT  OF  NOTES  AND  ACCOUNTS  RECEIVABIE  ARE  EXTENDED  OR  RENEWEDt 
ONTINGENT  LIABILITY:  NOTES   RECEIVABLE     DISCOUNTED    OR  SOLO  AND  NOT  INCLUDED  IN  THE  ASSETS  ABOVE  AMOUNT  TO 

LIABILITY  ON  ACCOMMODATlOli  INDORSEMENTS.   EXCHANGES  OF  NOTES  OR  CHECKS.  GUARANTIES  OR  BONDS.  OF  BRANCHES 
AS  WELL  AS  HEAD  OFFICE.  AMOUNTS  TO  ACCOUNTS  RECEIVABLE  ASSIGNED  OR  SOLD  AMOUNT  TO 

any  suits  pending  or  probable!  amount  involved  any  judgments  against  us? 

any  cumulative  or  preferred  dividends  passed!  amount 

ierchandise:  are  values  stated  above  based  on  actual  inventory!  are  any  pledged  assigned  or  mortgagedi 

DO  YOU  DISCOUNT  your  BILLS' 

and:  TITLE  IS  IN  name  of 

aUILPINCS:    TITLE   IS  IN   NAME   OF 


AT 


MARKET  VALUE  IS 

MARKET  VALUE  IS 


>THER  WEAL  estate:   TITLE  IS  IN  NAME  OF 


PEI*REClATION.  CHARGED  OFF  THE  LAST  YEAR  ON  BUILDINGS 
CHARGED  OFF  IN  PRIOR  YEARS  ON  BUILDINGS 
insurance:   KINO  and  amount  OF  INSURANCE   ON 


ASSESSED  AT 

ON  MACHINERY 
ON   MACHINERY 

MACHINERY 


HOWDiOl 
LOCATED  IN 
ON  FIXTURES  AND  OTHER  ASSETS 
ON  FIXTURES  AND  OTHER  ASSETS 
MERCHANDISE 
THROUGH  BROKERSt 
WHAT  AMOUNT  IS  INCLUDED  IN  ABOVE  STATEMENT! 
DUE  RATE 

PATENTS.  TRADEMARKS.   ETC.  IN  PROPERTY 

BRANCHES.  SELLING  OFFICES.  CONTROLLED    OH  8UB8IPIAWV  COMPANIES:  ARE  ANY  OF  THEIR  TRADE  ACCOUNTS  AND  NOTES  RECEIVABLE  AND  PAYABLE  INCLUDED 
THE  ABOVE!  IF  80.  STATE  AMOUNTS.  AND  ALSO  STATE  AMOUNTS  OF     "RECIPROCAL"  ACCOUNTS  AND  NOTES  SO  INCLUDED 


NOTES    PAYABLE.  WHAT   TIME  OF  YEAR  DO  YOU  NORMALLY  BORROW  OF  YOUR   BANKS' 

DO  YOUR  SELLING  OFFICES  OR  BRANCHES  BORROW  LOCALLY! 
BONDEO  DtBTANP    MORTGAGES:   ON  WHAT  ASSETS  A  LIEN' 
ISSUED 


CAPITAL    AUTHORIZED 


PAID  IN: 


CASH 


RE   ANY   OF   YOUR    CRE DITCRS— OTHER  THAN  BOND  OR  MORTGAGE   HOLDERS  ABOVE  INDICATED— SECURED    IN    ANY  WAY? 


AVERAGE  TERMS  OF  PURCHASE  ARE 


OF   SALE 


NOTES   two  ACCT8.   OF    CUSTOMERS 


STOCKS   OF   MERCHANDISE  ARE   U8041.L'  «AX 


LIABILITIES   ARE  USUALIT 


i^aVE  THE  BOOKS  BEEN  AUDITED  BY  A  CERTIFIED  PUBLIC  ACCOUNTANT! 
IF  SO  GIVE  NAME  OF  FIRM  AND  DATE 


ANNUAL    BALES  FOR  FISCAL  YEAR  ENDING 

GROSS    PROFIT  THEREON  NET 

DOUBTFUL  AND    BAP   DEBTS  WERE 

PROFIT^  WERE  DISTRIBUTED:  omoCNOt  ro  SURPUA 

DOES  THE  ABOVE  INCLUDE  SALES  OF  OR  TO  SELLING  OFfK;ES  OR 


WERE 
OTHER  INCOME 
ALL  CHARGED  OFF' 


BRAWCHE^t 


?^Tvy6^f1 


»NK  ACCOUNTS  WHERE   KEPT  NOW' 
FORMERLY  WITH 


ISIONATUREl 


Size  of  original  8H  x  10^ 
The  broken  dashes  at  right  and  left  sides  indicate  the  horizontal  ruling 


n 


SEATTLE  NATIONAL  BANK  of  Seattle,  Wash. 

The  undersigned,  for  the  purpose  of  procuring  credit  from  time  to  time  from  you  for  the  negotiable  paper  of  the  undersigned,  or  other- 
e,  furnishes  you  with  the  following  statement  and  information  which  fully  and  truly  sets  forth  the  financial  condition  of  the  undersigned 

the — day  of ,  19 ,  which  you  can  consider  as  continuing  to  be  full  and  accurate,  unless 

ice  of  change  is  given  you.     The  undersigned  has  no  liabilities  except  those  the  description  and  amount  of  wkich  are  distinctly  filled  in 
ow,  and  agrees  to  notify  you  promptly  of  any  change  that  materially  reduces  the  pecuniary  responsibility  of  the  undersigned. 

In  consideration  of  the  granting  of  such  credit,  the  undersigned  agrees  that  if  the  undersigned  at  any  time  fails  or  becomes  insolvent,  or 
nmits  an  act  of  bankruptcy,  or  if  any  of  the  presentations  made  below  prove  to  be  untrue,  or  if  the  undersigned  fails  to  notify  you  of 
/  material  change  as  herein  agreed;  then  and  in  either  such  case  all  obligations  of  the  undersigned  held  by  you  shall  immediately  become  due 
i  payable  without  demand  or  notice,  and  the  same  may  be  charged  against  the  balance  of  any  deposit  account  of  the  undersigned  with  you, 
;  undersigned  hereby  giving  a  continuing  lien  upon  such  balance  of  deposit  account  from  time  to  time  existing  to  secure  all  obligations  of  the 
dersigned  held  by  you,  either  as  borrower  or  guarantor. 


IVIOUAL 

IME 

rSINESS  CITY 

REET  ADDRESS BRANCHES,  if  any.. 


r  MARRIED.. 

I  OR 

SINGLE 


(In  the  Absence  of  Any  Amount,  Insert  Ciphers  in  Statement  Fokms.     Answer  All  Questions  on  Following  Pace. 
'None"  When  They  Will  Answer  the  Questions  Correctly.     Sign  at  Bottom  of  Next  Page.) 


Use  the  Words  "Yks,"  No" 


ASSETS 


Dollars 


Cents 


Cash  on  hand 

Cash  in. Bank 

Notes  Receivable,  Good,  Due  from  Cus- 
tomers   _ ~ 

Accounts  Receivable,  Good,  Due  from 
Customers 

Notes  and  Accounts  Receivable,  Good, 
Due  from  others  not  included  above. 

Notes  and  Accounts  Receivable,  Poor  or 
Doubtful,  Due  from  Customers 

None  of  the  above  Notes  and  Accounts 
Receivable  is  Due  from  Controlled  or 
Allied  Interests  or  from  Relatives,  ex- 
cept the  following 


Merchandise  (How  Valued) 

Real  Estate  in  my  Name  (Description  on 
Reverse  Side)  „. „ 

Machinery  and  Fixtures. _ 


°  S   1  Stocks  and  Bonds  (List  in  Detail). 


Total 


LIABILITIES 


Cents 


Notes  Payable  for  Merchandise.. 

Notes  Payable  to  Banks 

Notes  Payable  for  Paper  Sold.... 

Other  Notes  Payable 

Open  Accounts  Due 


Open  Accounts  Not  Due 

Money  Borrowed  or  Received  on  Open 
Account  not  included  above 


Taxes  Due  or  Unpaid.. 
Chattel  Mortgages  


Mortgages  or  Liens  on  Rea}  Estate 

I  have  No  Other  Liabilities,  except  the 
following  


Total  LiabilUiea.. 
Net  Worth 


The  undersigned  has  no  contingent  liabilities  except  as  the  amounts  thereof  are  filled  in  below. 


UPON  NOTES  OF  OTHERS  ENDORSED  BY  ME 

AS  GUARANTOR  FOR  ACCOUNTS  AND  NOTES  OF  OTHERS- 

UPON  NOTES  EXCHANGED  WITH  OTHERS 

AS  BONDSMAN  OR  SURETY  FOR  OTHERS 

UPON  LEASES  _ „ - — 

OTHER  THAN  ABOVE  SPEaFlED 


None  of  the  above  assets  is  mortgaged  or  pledged  as  collateral 
cept  the  following: 


None  of  the  above  liabilities  is  secured  by  collateral  except  the 
following: 


td  my  condition  today  is  fully  as  good  as  set  forth  by  the  above  figures. 

(OVER) 


Size  of  original  7'^^  x  lOH 

73 


Date  of  last  trial  balance  was 

Amount  of  business  done  last  year  was $... 

Gross  Profit  last  year  was $... 

Amount  of  exi>«--ses  last  year  was .$... 

Net  Profit  last  year  was ^... 

Amount  withdrawn  from  business  last  year  was  $... 

Amount  of  present  annual  rent  is ^.., 

I  have  no  sources  of  income 'other  than  that 
withdrawn  from  the  business,  except  the 
following:  _ 


.,  and  same  proved. 


have  no  other  banking  connections  of  any  kind,  except  with.. 


Insurance  Carried  on  Merchandise $... 

Insurance  Carried  on  Machinery  and  Fixtures.„3... 

Insurance  Carried  on  Buildings ^... 

Insurance  Carried  on  Life J$.., 

To  whom  Payable? 

Cash  Surrender  Value $.. 

In  what  Companies? 

To  what  date  is  premium  paid.' 


DESCRIPTION  OF  REAL  ESTATE  VALUED  ON  REVERSE  SIDE 


ADDITION    OR   PLAT 

LotorSeetioi 

Block  or 
Townihip 

Division  or 
Range 

Nature  of  Im- 
provementt 

Rent  Rec'd 
Per  IMonth 

i> 

Bulldln« 
Occupied 

Prewnt  Value 

Amount  of 
Encumbrance 

When  Duo 



• 



:~ 

1 

It  title  to  property  described  in  your  name?.. 
State  exceptions  


The  foregoing  statements  and  details  pertaining  thereto,  both  printed  and  written,  have  been  carefully  read  by  me  and  I  hereby  solemnly 
-    all;— 


declare  an4  certify  that  the  same  is  a  full  and  correct  exhibit  of  my  financial  condition  and  contains  all  information  and 
explanation  necessary  for  a  full  and  clear  understanding  of  my  true  condition. 


Rerbzitcu: 


(Please  Sign  Name  Here) 


Date  Signed... 


(OVER) 

Size  of  original  7j^  x  lOj/^ 


74 


FREET  ADDRESS 


AME 

USINESS 


XTTY 

.BRANCHES,  vr  xttx 


SEATTLE  NATIONAL  BANK  of  Seattle,  Wa$h. 

The  undersigned,  for  the  purpose  of  procuring  crfedit  from  time  to  time  from  you  for  the  negotiable  paper  of  the  undersigned,  or  other- 

e,  furnishes  you  with  the  following  statement  and  information  which  fully  and  truly  sets  forth  the  financial  condition  of  the  Undersigned 

»  ti>e - "day  of  ..._ ,  19 ,  which  you  can  consider  as  continuing  to  be  full  and  adciirate,  unless 

Itice  of  change  is  given  you.  The  undersigned  have  no  liabilities  except  those  the  description  and  amount  of  tohich  are  ditiinetly  filled  in 
lioto,  and  agree....  to  notify  you  promptly  of  any  change  that  materially  reduces  the  pecuniary  responsibility  of  tlie  undersigned. 
In  consideration  of  the  granting  of  such  credit,  the  undersigned  agree.._  that  If  the  imdersigned  at  any  time  fail  or  become  insolvent  or 
unit  an  act  of  bankniptcy,  or  if  any  of  the  representations  made  below  prove  to  be  untrue,  or  if  the  undersigned  fail  to  notify  you  of 
Hf  material  change  as  herein  agreed;  then  and  in  either  such  case  all  obligations  of  the  undersigned  held  by  you  shall  immediately  become 
ae  and  payable  without  demand  or  notice,  and  the  same  may  be  charged  against  the  balance  of  any  deposit  account  of  the  undersigned 
1th  you,  the  undersigned  hereby  giving  a  continuing  lien  upon  such  balance  of  deposit  account  from  time  to  time  existing  to  secure  all  obli- 
•Uons  of  the  undersigned  held  by  you,  either  as  borrower  or  guarantor. 


(In  the  Absence  or  Any  Amount,  Inseki  Ciphers  in  Statement  Forms.     Answer  All  Questions  on  Following  Page.    Usr  tbe  W6»ds  "Yis  " 
"None"  Whew  They  Will  Answer  the  Qtjesticns  Cokijectly.     Sign  at  Bottom  of  Next  Page.) 


'No" 


Cents 


LIABILITIES 


Dollars 


Cents 


Cash  on  hand 

Cash  in.. 


.Bank. 


Notes  Receivable,  Good,  Due  from  Cus- 
tomers  


Accounts   Receivable,  Good,  Due  from 
Customers ■. ; .. 


Notes  and  Accounts  Receivable,  Poor  or 
Doubtful,  Due  from  Customers 

Notes  and  Accounts  Receivable,  Due 
from  Partners  and  Employees 

None  of  the  above  Notes  and  Accounts 
Receivable  is  Due  from  Controlled  or 
Allied  Concerns,  except  the  following... 


Merchandise  Finished  (How  Valaed). 


Merchandise  Unfinished  (How  Valued). 

Real  Estate  in  firm  name  (Description 
on  Reverse  Side) 


Machinery  and  Fixtures. 


Stocks  and  Bonds  (list  In  Detail). 


1^ 


Notes  Payable  for  Merchanidse.-^.. 
Notes  Payable  to  Banks „.....»_ 


Notes  Payable  for  Paper  Sold.. 

Other  Notes  Payable 

Open  Accounts  Due  ~-...^_>— » 


Open  Accounts  Not  Due  — 

Salaries  and  Wages  Due  to  Date 

Money  Borrowed  or  Received  on  Open 
Accotmts,  not  included  above 


Taxes  Due  or  Unpaid 
Chattel  Mortgages 


Mortgages  or  Liens  on  Real  Estate 

We  have  No  Other  Liabilities  Except  the 
Following: 


Total  Liabilities 
•  Net  Worth 


TotaL.. 


The  undersigned  have  no  contingent  liabilities  except  as  the  amounts  thereof  are  filled  in  below. 


None  of  the  above  assets  is  mortgaged  or  pledged  as  collateral 
except  the  following: 


UPON  RECEIVABLES  DISCOUNTED  OR  PLEDGED                       ,                                   



UPON  ACCOMMODATION  PAPER  OR  ENDORSEMENTS - ,                                                     

UPON  NOTES  EXCHANGED  WITH  OTHERS                           

ITPON  rtTSTOMERS'  ACCOUNTS  SOLD  AND  ASSIGNED       

AS  GUARANTOR  FOR  OTHERS  ON  NOTES   CONTRACTS   KTC,..-, 

UPON  poNDS  OR  TTWEiNTSHED  roMTRACTS                     „      ,,„ 

UPON  LEASES -„ .-^^ .- 

None  of  the  above  liabilities  Is  secured  by  collateral  except 
following: 


Between  the  date  of  the  above  inventory  and  the  present  time  the  undersigned  have  had  no  terioos  losses  through  bad  debts  or  otbendse 


^except) 


our  condition  today  is  fully  as  good  as  set  forth  by  tfie  above  figures. 

(OVER) 


Size  of  original  S%  x  10^ 

IS. 


The  Names  in  full  of  all  General  Partnert 
and  th*  respective  vortk  of  each,  ovt- 
tide  of  the  businesg,  are  at  followt: 


The  Names  H  full  of  all  Special  Partners 
with  oTtiounts  eontribuied  6y  each  and 
until  when,  are  at  follows : 


Date  of  last  trial  balance  was ,  and  same  proved. 

Amount  of  business  done  last  year  was 3 

Gross  Profit  last  year  was $ 

Amount  of  expenses  lost  year  was $ 

Net  Profit  last  year  was. .$. „ _ 

Total  salary  to  partners  last  year  was..- — |l.....,., — „ 

Amoubt  withdrawn  from  business  last  year 

exclusive  of  salaries  was J$t.;^..t\timJiJJiiJ..A?.k%ik^.... 

Do  you  m^ntain  a  daily  or  weekly  record  of  costs  and  profits? 


The  undersigned  have  no  sources  of  revenue  other  than  that  deriv 
from  the  conduct  of  business  except  the  following: 


Amount  of  present  annual  rent  is J^... 

Amount  Charged  Off  for  Bad  Debts  last  year 

wai    ....; $... 


Insurance  Carried  on  Merchandise  „...J$. „ 

Insurance  Carried  on  Machinery  &  FixtureS......$. 

Insurance  Cupried  on  Buildings  .$ 

Insurance  Carried  on  Life  for  Benefit  of  Firm..$ _ 

We   have   no  other  banking  connections  of  any  kind,  except   wi 


DESCRIPTION  OF  REAL  ESTATE  IN 

FIRM  NAME  VALUED  ON  REVERSE  SIDE 

ADOITIOM 

OR 

l»LAT 

LOT 
SECTIOH 

BLOCK 

OR 

TOWNSHIP 

DIVISION 

OR 

RANGE 

PRESENT  VALUE 

AMOUNT    OF 
ENCUMBRANCE 

wNia  ou 

. 

_ 



" 

1' 

"••- - 

— 

•-•■ 

» 

»L«UiilaU  U 

.'.".",.  "".'J J'U„  SileW/aW  ' 

_,. 

'■ 

-TuvTrTurmrrrj 


The  foregoing  ctatemeots  and  details  pertaiiung  thereto,  both  printed  and  written,  have  been  carefully  read  by  the  ondersigned,  and  I  herel 
solemnly  declare  and  certify  that  the  same  is  a  full  and  correct  exhibit  of  our  financial  condition  and  contains  aU  infor- 
mation and  explanation  necessary  for  a  full  and  complete  understanding  of  our  true  position. 


(Please  Sign  Firm  Name  Here) 


Bf. 


Dede8igm0d^ 


JSU 


Sire  of  original  8^  x  10^ 


76 


""  p. 


MB  

SINBSS 

lEET  ADDRESS , 


.CITY 

.BRANCHES,  zr 


SEATTLE  NATIONAL  BA^K  of  Seattlt.  Wath.  

The  undersigned,  for  the  purpose  of  procuring  credit  from  time  to  time  from  you  for  the  negotiable  paper  of  the  undersigned,  or  other- 

1,  furnishes  you  with  the  following  statement  and  information  which  fuUy  and  truly  sets  forth  the  financial  condition  of  the  undersigned 

jhe. day  of „ — „..^  19 ,  which  you  can  consider  as  continuing  to  be  full  and  accurate,  unless 

Ice.  of  change  is  given  you.    The  undersigned  corporation  has  no  liabilitxet  except  thote  the  de$eriftion  and  amount  of  which  are  dutinctly 

I  in  belov),  and  agrees  to  notify  you  promptly  of  any  change  that  materially  reduces  the 'pecuniary  responsibility  of  the  undersigned. 

In  consideration  of  the  granting  of  such  credit,  the  undersigned  agrees  that  If  the  undersigned .»t  any  time  fails  or  becomes  insolvent,  or 
omits  an  act  of  bankruptcy,  or  if  any  of  the  representations  made  below  prove  to  be  untrue,  or  If  the  undersigned  fails  to  notify  you  of 
r  material  change  as  herein  agreed;  then  and  in  either  such  case  all  obligations  of  the  undersigned  held  by  yon  shall  immediately  become  due 
i  payable  without  demand  or  notice,  and  the  same  may  be  charged  against  the  balance  of  any  depmit  account  of  the  imdersigned  with  you, 
!  undersigned  hereby  giving  a  continuing  lien  upon  such  balance  at  deposit  account  frmn  time  to  tfane  existing  to  secure  all  obligations  of  the 
dersigned  held  by  you,  either  as  borrower  or  guarantor. 


(iM  TH«  AauMCE  or  Amy  Amoukt.  Ihseit  CirHKM  m  Stat«hii«t  Fo«i»«.    Anrim  Au.  Qdutioms  ox  Foluwino  Paos.    U«  rat  Wosds  "Ym."  No" 
"Nowe"  Whkw  Th«y  Wiix  Answer  the  QugsTiows  Co»«tcTLY.    Slew  at  BorroM  or  Nmt  Pace.) 


ASSETS 


Dollars 


Cents 


Cash  «o  band... 
Cash  in.. 


.Bank.. 


Notes  Receivable,  Good,  Due  from  Cus- 
tomers   , — 

Accounts  Receivable,  Good,  Due  from 
Customers   

Notes  and  Accounts  Receivable,  Poor  or 
Doubtful,  Due  from  Customers 

Notes  and  Accounts  Receivable,  Due  from 
Stockholders,  OflScers  and  Employees. 

None  of  the  above  Notes  and  Accounts 
Receivable  is  Due  from  Controlled  or 
Allied  Concerns,  except  the  following. 

$ 


Merchandise  Finished  (How  Valued).. 


Merchandise  Unflolshed  (How  Valued). 


Raw  Material  (How  Valued) 

Real  Estate  in  Corporation^  Name  (De- 
scription on  Reverse  Side).. 


Machinery  cmd  Fixtures- 

Stocks  and  Bonds  (List  in  DetaU). 


LIABILITIES 


Cents 


Notes  Payable  for  Merchandise... 
Notes  Payable  to  Banks „ 


Total. 


Notes  iPayable  for  Paper  Sold 

Notes  Payable  to  Officers,  Directors  or 
Stockholders  .„.„ 

Other  Notes  Payable 

Open  Accounts  Due 

Open  Accounts  Not  Due 

Salaries  and  Wages  Due  to  Date. 

Bonded  Debt  (Due  19 ) 

Interest  on  Bonded  Debt. 

Dividends  Unpaid  — „„ 

Chattel  Mortgages _ 

Mortgages  or  Liens  on  Real  Estate..... 
Money  Borrowed  or  Held  in  Trust,  not 
included  above __ 


Taxes  Due  and  Unpaid.. _ 

The  Undersigned  has  no  other  Liabilities, 
except  the  following. _ 


Total  LiabUUiet... 

Capital  Stock 

Surplus 


The  undersigned  has  no  contingent  liabilities  except  as  th6  amounts  thereof  are  filled  in  below. 


UPON  RECEIVABLES  DISCOUNTED  OR  PLEDGED _ _ _ — - 

UPON  ACCOMMODATION  PAPER  OR  ENDORSEMENTS - - 

UPON  NOTES  EXCHANGED  WITH  OTHERS _ __ .: ~ 

UPON  CUSTOMERS'  ACCOUNTS  SOLD  OR  ASSIGNED... ~    ...    ..*...._ 

AS  GUARANTOR  FOR  OTHERS  ON  NOTES.  CONTRACTS,  ETC. - ,. 

UPON   BONDS  OR  UNFINISHED  CONTRACTS h— ~ - 



None  of  the  above  assets  is  mortgaged  or  pledged  as  collateral 
xcept  the  following: 


None  of  the  above  liabilities  is  secured  by  collateral  except  the 
folLowIng: 


except) 

wd  our  cmtdition  today  is  fully  ««  good  as  set  forth  by  the  above  figures. 

(OVER) 


Size  of  original  7j/  x  lOj^ 
77 


AotEbrlzed  Capital  $ „„ ^Subscribed  Capital  $ '....^ ^ 

Held  by  Company  as  Treasury  Stock , 

Ho*  paid  in:   Cash  9 Other  Propeity  $.. 

Description  of  other  property  and  how  valued 


Capital  Paid  in  $.. 


Incorporated  in  what  State  and  under  v>hat  General  Law  or  Special  Act 

Date  of  Charter , Commenced  Business 

Are  Stockholders  liable'beyond  amount  of  slock  subscribed? 


Amount  of  business  done  last  year    -    -  $.. 

Gross  Profit  last  year  was    -----  $... 

Amount  of  expenses  last  year  was    -    -  $... 

Net  Profit  last  year  was    -----  $... 

CflBcers'  salaries  last  year    -----  $... 


Amount  charged  off  for  bad  debts  last  year  was  $ „ „ 

The  undersigned  has  no  other  sources  of  revenue  other  than  that 
derived  from  the  conduct  of  business,  except  the  following^ 


Insurance  on  Merchandise  $ Life  Insurance  Carri 

for  Corporation  on  life  of $ 

Insurance  on  Machinery  and  Fixtures  $ 

Insurance  on  Buildings  $ 


and  present  salaries  are  same  except  as  otherwise  noted  hereon, 

Amount  of  present  annual  rent  is    -    -    $ _ 

Dividends  paid  last  year    -----    $ 

Do  you  maintain  a  daily  or  weekly  record  ot  costs  and  profits? _ 

Give  basis  of  statement,  whether  actual  inventory,  by  whom  j 

taken  and  date,  or  if  estimate,  by  whom  made  and  date.  (. _ _ 

Is  allowance  made  for  depreciation?  „ „ Amount  and  basis  of  allowance  for  depreciation  is  as  follows 

What  amount,  if  any,  of  Acc't9  and  Bills  Rec.  are  past  due,  extended  or  renewed? - 

Date  of  last  trial  balance  was ,  and  same  proved 

Regular  dates  of  taking  inventory „ _ _ _ -Regular  dates  of  balancing  books 


The  undersigned  has  no  other  banking  connections  of  any  kind,  except  with: 

What  are  your  usual  terms  of  purchase?...- _ „ Do  you  discount? -Anticipate?.. 

Name  s  few  coDcems  from  whom  you  purchase  in  large  quantities: , — 


DESCRIPTION  OF  REAL  ESTATE  VALUED  ON  REVERSE  SIDE 

ADDITION  OR  PLAT 

LOT 

OR 

SECTION 

BLOCK 

OR 

TOWNSHIP 

DIVISION 

OR 

RANGE 

PRESENT  VALUE 

AMOUNT 
OF  ENCUMBRANCE 

WHEN  DU 





r "■■■ 

OFFICERS  AND   DIRECTORS   (NA3IX  IN  rVU.) 

NVMBEB 
SHARES 
HELD 

ADDEES8 

PTO.     1  COM. 

PRESIDENT    

VICE  PRESIDENT  - - 

SECRETARY   



~- -• 





The  foregoing  statements  and  details  pertaining  thereto,  both  printed  and  written,  have  been  carefully  read  by  the  undersigned,  and  I  here 
solemnly  declare  and  certify  that  same  is  a  full  and  correct  exhibit  of  the  financial  condition  of  tlie  undersigned  and  contains 
all  information  and  explanation  necessary  for  a  full  and  clear  anderstanding  of  the  true  position  of  the  undersigned. 
Referekces: 

(Please  Sign  Corporate  Name  Here) 


By.. 


Date  Signed 


(OVER) 

Size  of  original  714  x  10^4 


78 


) 

SMK       (OfieUI  <om  e<  SmcwiHtt  M  db^  by  tke  SyekuM  OewtBt  Hont  AiMdatfea  foOavfaiff  the  MfgMlloM  ttf  Pcdanl  aiwm  Buk 

rSHENT  OF .                     1.                                         „          ,         ■             AW  UMUiviuuAL. 

1  nf  RiminAsii                                                                                                                                 AddreBB 

HE  OLD  NATIONAL  BANK.  Spokaae.  WaahIa«toBt 
)r  the  purpose  of  procuring  credit  'from  time  to  time  with  you  for  my  negoUablo  paper  or  otherwlsev  I  fum 

ish  you  with  the 

__,  which  you  are 
h  I  undertake  to 

8  you  may  desire 
ptcy  on  my  part, 
failure   to  notify 
as  borrower  or 
id  the  same  may 
OBlt  account  from 

aive  or  affect  any 
pear.) 

snalder  as  continuing  to  be  full  and  accurate  until  I  give  you  written  notice  of  any  material  change,  of  whlc 

!y  you  promptly. 

consideration  of  your  granting  me  any  credit,  I  agree  to  furnish  you  during  the  continuance  of  such  credit  a 
omenta  of  my  condition,  and  that  in  case  of  failure  or  insolvency  or  the  commission  of  any  act  of  bankru 
1  the  event  of  its  appearing  at  any  time  that  any  of  the  following   representations   are   untrue,   or   of   my 
of  any  material  change  as  above  agreed,  then  and  in  any  such  event  all  aind  any  of  my  obligations,  eithei 
•an tor,  held  by  you,  shall  at  your  option  immediately  become  due  and  payable  without  demand  or  notice,  ai 
u  'barged  against  the  balance  of  my  deposit  account  with  you,  I  hereby  giving  a  continuing  lien  upon  such  dep 

-  .to  time  existing,  to  secure  all  such  obllgaUons. 

further  agree  that  the  exercise  of,  or  omission  to  exercise,  the  option  aforesaid  in  any  Instance  shall  not  w 
"  r  or  subsequent  right  to  exercise  the  same. 
ni                   (IMPORTANT— Read  this  loria  (liron(h  carefoUy  before  filliai  in  ameiuits.— Write  NONE  where  bo  amoBBt  is  to  af 

ASSETS                                                     1 

UABILITIES                                               H 

,.   K  ASSETS.— 

NoteB  Payable  to  Your  Bank 

NotfiB  Payahlft  to  Other  Banka 

Notes  Payable  for  Merchandise,  not  due 

BS  Receivable  from  CuBtomers,  Good  

Notes  Payable  for  Merchandise,  past  due 

>x;pt9  H^tiAlvable  from  Cu^tAmers,  Qood,.  , 

Accounts  Payable  for  Merchandise,  not  due__. 
Accounts  Payable  for  Merchandise,  past  due 

-  Cb  «"''*"« 

_  r  ASSETS^ 

rhi«  on  nonBlgned  Cooda  Sold 

ountB  RfCPlvftble,  p*Bt  du^  or  Blow ,     ._ 

Notes  Payable  to  Relatives  or  Friends 

"  es  and  AccounU  Receivable  from   }  EiDpio^te. 
er  Notes  and  Accounts  Receivable 

Deposits  of  Money  by  Employees  or  Others 

Other  Liftbllitief 

D  ASSBTS.- 

ika  and  Bonda   Cost  I                   Valued  at 

"  Mres                  Cost  »                  Valued  at 

:hinery  ft  Tools  Cost  |                   Valued  at 

n>.»tt«l  Mort^fl-ei. 

"'  ses  ft  Wagons    Cost  %                  Valued  at 

~  omobUes            Cost  %                  Valued  at 

■ 

TiiTAB  Md  ABBftBfimanta  Unpaid 

1  Estftt^J — ^'Ift  nn  rftVBTBft  Bide  .  _        ., 

Mortgages  on  Real  Estate— List  on  reverse  side 

TOTAt 

- 

^ 

Net  Worth 

TOTAL 

TOTAL 

"  ITINGENT  LIABILITY.  Accommodation  Endorsements 

'  <[otes  and  accounts  receivable  sold  or  assigned  not  !_ 

lnclu( 

1«d   In  th«  AhnvA 

OtttAr  Contingent  LJ&bllity 

-  SSIGNMENTSt— Do  any  of  the  Asseto  or  LlabiUUes  originate  from  Merchandise  held  on  consignment  or  subject  to  any  agency 

—  HBr<»*Tn«*'»t» 

.LATERAL:— Specify  any  of  the  above  Assets  pledged  as  coll 

Atnrftl 

y  Specify  any  of  the  above  Liabilities  secured  by  coUaten 

».\ 

rI7RANCR;— On  Merchandise,  f 

niHliflnM.  s                                            FiTtnrAB.  S 

Namfis  of  r.ompanles                    _            _              _ 

Life  InauranM*,  |                                       |ii  favor  of 
"'  Credit  InanrancA,   f                                            <>n^pf  nlaa 

GomnaniftB 

Siz 

eof 

orii 

;inal  7'A  x  10% 

7^ 

. 

Debit                        PROFIT  AND  LOSS  ACCOUNT  FOR  FISC 

At.  YRA|l  RNHTNA 

la 

C 

Ar.t.iiAl  Expensefl  fof  Condiinting  Bnslneaa 

Ornaa  Pmfita  from  Salea 

Rail  r>Aht8  Charged  Off 

Interest  and  Dl^counta 

nAprAftii^tion 

nth«r  Inminik 

Net  Profita 

TOTAL 

, 

TOTAl    - 

Grosa  sales  for  same  period,  $ 

l8  this  Statement  based  on  actual  Inventoir?. 

B7  whom  was  Inventory  taken? 

Regular  times  tor  taUng  Inventory? 

Date  of  last  audit . 

Do  you  discount? 


Average  amount  of  Stock  carried,  I. 
If  so,  give  date 


.19— 


By  whoto  verified?. 


.  Regular  times  for  closing  books? 


.By  whom  audited?. 


Average  terms:    Buying. 


.SelUng. 


Time  of  year  when  notes  and  accounts  receivable  uncollected  are  at  maximum. 


mlnimom. 


Time  of  year  when  notes  and  accounts  payable  unpaid  are  at  maximum. 
Time  of  year  when  Merchandise  is  at  a  maxlmnm 


minimum. 


.minimum. 


Give  last  date  when  you  were  oat  of  debt  to  ihe  Bank. 
References  and  Principal  Creditors 


REAL  ESTATE  OWNED  BT  MB 

DBSCBIPnON 

Title  in  Name  of 

Present  Value 

Mortgage* 

Due 

• 

. 

B 

Valiw  of  property  exempt  from  execntloa*  I: 

Boildings  used  for  busineu  cost  t 

H6me  property  cost  I Valued  at  |_ 


at  I. 


' 

(PlaaiA  sign  ben) 

Pit*  tfrft^            ^„ 

MMftSMMW.    t$ttT* 

Size  of  original  75^  x  lOK 

80 

(Official  foim  of  Statement  as  adopted  by  the  Spokane  Clearing  House   Association   following  the  suggestions  of   Federal   Reserve  Bank) 

MENT   OF^ — A  FIRM 

usinesp Address 


li. 


OLD  NATIONAL  BANK,  Spokane,  Washington : 

the  purpose  of  procuring  credit  from  time  to  time  with  you  for  our  negotiable  paper  or  otherwise,  we  furnish  you  with  the 

ng  as  a  true  and  accurate  statement  of  our  financial  condition  on ,  19 ,  which  you  are  to 

■r  as  continuing  to  be  full  and  accurate  until  we  give  you  written  notice  of  any  material  change,  of  which  we  undertake  to 
you   promptly. 

ansideration  of  your  granting  us  any  credit  we  agree  to  furnish  you  during  the  continuance  of  such  credit  as  you  may  desire 
ents  of  our  condition,  and  that  in  case  of  failure  or  insolvency  or  the  commission  of  any  act  of  bankruptcy  on  our  part  or 

part  of  any  member  of  our  firm,  or  in- the  event  of  its  appearing  at  any  time  that  any  of  the  following  representations  are 

or  of  our  failure  to  notify  you  of  any  material  change  as  above  agreed,  then  and  in  any  such  event  all  and  any  of  our  obliga- 
either  as  borrower  or  guarantor,  held  by  you,  shall  at  your  option  immediately  become  due  and  payable  without  demand  or 

and  the  same  may  be  charged  against  the  balance  of  our  deposit  account  from  time  to  time  existing,  to  secure  all  such 
tions. 
-4 further  agree  that  the  exercise  of,  or  ommlssion  to  exercise,  the  option  aforesaid  In  any  instance  shall  not  waive  or  affect 
her  or  subsequent  right  to  exercise  the  same. 

(IMPORTANT— Read  this  Form  througrh  carefully  before  fllling  in  amonntg.    Write  NONE  where  no  amount  Ib  to  appear.) 


ASSETS 


LL4B1LITIES 


ASSETS  1— 

on  Hand. 


—  in  Your  Bank_ 


in  Other  Banks 


Receivable  from  Customers,  Good 

nts  Receivable  from  Customers,  Good 
landise 


ASSETS  I— 

Receivable,  past  due  or  slow 


ints  Receivable,  past  due  or  slow. 


and  Accounts  Receivable  from  Partners 
and  Accounts  Receivable  from  J  EmpioV«! 
Notes  and  Accounts  Receivable 


inery  &  Tools  Cost  ?. 
23  &  Wagons  Cost  |i_ 
mobiles Cost  5. 


s  and  Bonds     Cost  ?. 


Cost  %. 


Valued  at 
Valued  at 
Valued  at 
Valued  at 
Valued  at 


Estate — List  on  reverse  side  . 


Total 


Notes  Payable  to  Your  Bank 


Notes  Payable  to  Other  Banks. 
Notes  Payable,  Paper  Sold  


Notes  Payable  for  Merchandise,  not  due 

Notes  Payable  for  Merchandise,  past  due 

Accounts  Payable  for  Merchandise,  not  due  _ 
Accounts  Payable  for  Merchandise,  past  due. 


Due  on  Consigned  Goods  Sold 

Notes  Payable  to  Relatives  or  Friends 

Deposits  of  Money  by  Employees  or  Others, 
Other  Liabilities . 


Fixtures  Bought  on  Contract,  Balance  Due 
Cha'ttel  Mortgages 


Taxes  and  Assessments  Unpaid  

Mortgages  on  «eal  Estate — List  on  reverse  side 


Total  Liabilities. 


NET  WORTH 


Total 


TINGENT  LIABILITY,  Accommodation  Endorsements 

Notes  and  accounts  sold  or  assigned  not  included  in  the  above 
For  bonds  of  guarantees  


Other  Contingent  Liability  (Stock  or  other  subscriptions) -. 

^SIGNMENTS:—  Do  any  of  the  Assets  or  Liabilities  originate  from  Merchandise  held  on  consignment  or  subject  to  any  agency 


"  agreement? 

XATERAL: — Specify  any  of  the  above  Assets  pledged  as  collateral. 

Specify  any  of  the  alwve  Liabilities  secured  by  collateral  ^_ 

URANCE,  On  merchandise  $ .  Buildings  $^ 

Names  of  Companies 

Life  Insurance  $ .. In  favor  of 


.,  Fixtures  J. 


.Companies 


Credit  Insurance  | 
Uability  Insurance  9. 


Companies 

Companies 


Size  of  original  7^  x  lOj^ 


81 


Dedit                           PEOFIT  and  LOSS  ACCOU>''r-  PTSflAT,  YEAR  ENDING 

in 

Cm 

' 

Actual  Expenses  for  Conducting  Business 

— 



Gross  Profits  from  Sales 

V.^^  nohtR  riiftrgfirt  Off 

Interest  and  Discounts 

- 

Other  Income 

(With  drawn  In,  ?                                   ) 

"1 

J 

— 

Npt  Profits 

1 

Total 

__ 

_ 

Total 

1           1 

Gross  Sales  for  same  period  I 

Is  Statement  based  on  actual  inventory^ 
By  whom  was  inventory  taken?        . 

Regular  times  for  taking  inventory? 

Date  of  last  Audit 

JDo  you  discount?  


.  Average  amount  of  stock  carried  $ . 


If  80,  give  date 


-IQ 


19 By  whom  audited 

Average  terms:     Buying 


.By  whom  verified? 

_  Regular  times  for  closing  books  ? 


.Selling. 


Time  of  Year  when  Notes  and  Accounts  Receivable  uncollected  are  at  maximum 

Time  of  year  when  notes  and  accounts  payable  unpaid  are  at  maximum 

Time  of  year  when  merchandise  is  at  a  maximum? 

Give  last  date  when  you  were  out  of  debt  to  the  Bank_^ 

References  and  Principal  Creditors , 


.minimum. 


_mmmium. 
.minimum. 


GENERAL  PARTNERS 

Name 

Address 

Amount 
Contributed 

Outside 
Net  Worth 

Salary     . 

1 

1 

1 

1 





REAL  ESTATE  OWNED 

DESCRIPTION 

Title  in  Name  of 

Present  Value 

Mortgages 

Due 

Assessed  Valu 

_ 



1 

I 

1 

1 

1 



Buildings  used  for  business  qpst  $. 


Valued  at  $. 


(Sign  firm  name). 


By. 


Date  Signed. 

Size  of  original  7^^  x  lOj^ 


82 


(Ofllcial  form  of  Statement  as  adopted  by  tbe  Spokane  OeartftiT  Rouse  Association  fotlowiai  tlie  jugg^Hons  ol  ^cdcnit  Rcatrre  Bink) 


Cement  of_ 

I  of  Business. 


A  COEPORATION 


AddrosB 


Of  HE  OLD  NATIONAL  BANK,  Spokane,  Washington: 
i'  tlie  purpose  of  procuring  credit  from  time  to  time  with  ybu  for  our  negotiable  paper  or  otherwise,  we  furnish  you  with  the 

oiving  as  a  true  and  accurate  statement  of  our  financial  condition  6n ,  19-,—,  which  you  are  to 

,:a|der  as  continuing  to  be  full  and  accurate  until  we  give  you  written  notice  of  any  material  change,  of  which  we  undertake  to 

'i«?  you  promptly. 

|consideratIon  of  youi>  granting  us  any  credit.  We  agree  to  furnish  you  during  the  continuance  of  such  credit  as  you  may  dealre 
itJraents  of  our  condlUOn,  and  that  la  case  of  failure  or  insolvency  or  the  .commission  of  any  act  of  bankruptcy  on  our  part,  or 
ale  event  of  its  appearing  at  any  time  that  any  of  the  following  representations  are  untrue,  or  of  our  failure  to  notify  you  of 
iJnaterlal  change  as  above  agreed,  then  and  In  any  such  event  all  and  any  of  our  obligations,  either  sia  borrower  oi. guarantor, 
iji  by  you,  shall  at  your  option  Immediately  become  due  and  payable  without  demand  or  notice,  and  the  $9me  tnay  be  charged 
.St  the  balance  of  our  deposit  account  with  you,  we  hereby  giving  a  continuing  lien  upon  such  deposit  account  from  time  to  time 
2^°^'  *°  secure  all  such  obligations. 

further  agree  that  the  exercise  of,,  or  ommlssion  to  exercise,  the  option  aforesaid  In  any  instance  shall  not  waive  or  affect 
jther  or  subsequent  right  to  exercise  the  same. 

(IMPORTANT— Read  this  Form  through  carefully  before  filling  In  amounts.    Write  NONE  where  no  amount  Is  to  appear.) 


ASSETS 


LUBILITIES 


ASSETS:— 

on  Hand 

In  Your  Bank„ 
in  Other  Banks. 


s  Receivable  from  Customers,  Good  . 

unts  Receivable  from  Customers.  Good, 
handlae 


ASSETSi— 

s  Receivable,  past  due  or  slow  

lunts  Receivable,  past  due  or  slow 


!«'8  Receivable  from  Stockholders 

A  )unt8  Receivable  from  Stockholders 

)i  t>3  and  Accounts  Receivable  from  Employes 


iksaod  Bonds  Cost  |. 

ures Cost  f . 

hinery&  Tools  Cost  I. 

lei  ft  Wagons  Cost  $. 

mobiles Cost  I. 


.Valued  at 
.Valued  at 
.Valued  at 
.Valued  at 
.Valued  at 


Estate — List  on  reverse  side.. 


Notes  Payable  to  Your  Bank 

Ndtes  Payable  to  Other  Banks 
Notes  Payable,  Paper  Sold  


Notes  Payable  for  Merchandise,  not  due 

Notes  Payable  for  Merchandise,  pasjL  due 

Accounts  Payable  for  Merchandise,  not  due 

Accounts  Payable  for  Merchandise,  past  due 


Due  on  Consigned  Goods  Sold 

Notes  Payable  to  Relatives  or  Friends. 
Deposits  of  Money  by  Stockholders 


Deposits  of  Money  by  Employes  or  Others 
Other  Liabilities 


Chattel  Mortgages 

Fixtures  Bought  on  Contract,  Balance  Due  . 


Interest  on  Bonded  Debt  (Rate 

Bonded  Debt  (When  due 

Taxes  Unpaid 


Local  Assessments  Unpaid  

Mortgages  on  Real  Estate — List  on  reverse  side 


Capital   

Surplus  

Uhdlvliied  Ih-ofiU 


ITDfOENT  LIABILITY:— Accommodation  EndorsemenU 


Notes  and  accounts  receivable  sold  or  assigned  NOT  included  in  above  assets . 
For  bonds  or  guarantees _««_««___«_ 


Other  Contingent  Liability  (Stocks  or  other  subscriptions) ^._^___^ _-.^ . 

NSI6NJIENTS:  — Do  any  of  tUe  AsseU  or  Liabilities  originate     from  Merchandise  held  on      consignment  or  subiect  to  any 
agency  agreement? ,    .       ,         ,  ,  ■ — *— 


LLATERAL:—  Specify  any  of  the  above  Assets  pledged  as  Collateral 

Specify  any  of  the  above  Liabilities  secured  by  collateral t,  ,  , 

Oo  what  Assets  are  the  Bonds  of  the  Company  a  Hen? 


•ovsr) 

Size  of  original  7^^  x  10j4 
83 


IltSUBAXt'B,    On  Merchandise,  $ 
Names  ot  Companies       • 


Butldloss.  %. 


Plxtures.  % 


IJfe  Insurance.  S 



[n  favor  of 
ComDdnles 

Liability  Insurance,  $ 

Comnanies 

Debit                         PROFIT  AND  LOSS  ACCOUNT,  FISCAL  y?.AR  ENPTNfi                                                   1» 

Cri 

1          B        OrrtRB  PrnfltJunn  Sales                                                       B 

Kad  D^bta  Charged  Off 

Interest  and  Diaodubta 

(Paid  in  nividpndR    S 

Net  Prodts 

_ 

•^"mm 

I^MiM 

TOTAL 

TOTAL 

Gross  Sales  for  same  period,  $  

Is  Statement  based  on  actual  inventory?. 

Dy  whom  was  Inventory  taken? 

Rvgular  times  for.  taking  Inventory? 

Date  of  last  audit? 

Do  you  discount? 


Average  amount  of  Sitock  carried,  %  _ 
■      ;  If  so;  gire  date. 


.19— 


.By  whom  verified? 


.Regular  times  for  closing  books?. 


.19- 


By  whom  audited. 


Average  terms:   Buying 


SelUng. 


Time  of  year  when  notes  and  accounts  receivable  uncollected  are  at  maximum 
Time  of  yealP  When  faotes  and  accounts  payable  unpaid  are  at  maximum,  ____ 

Time  of  y6&r  when  stocks  of  merchandise  are  at  maximum 

Give  last  date  when  you  were  out  of  debt  to  the  Bank ■_ ._ 

References  *nd  Principal  Creditors i , 


minimum . 

minimum 


REAL  ESTATE  OWNED  BV  CORPORATION 

DESCRIPTION 

Title  in  Name  of 

Present  Value 

Mortgages 

Wheu 
Due 

.'\sse8sed  Valu 

• 

' 

1 





__: I 

— 

Luildings  used 
CAPITAL  STOC 

Amount  of 

ilued  a 

ts 

Vj  Subscribed.  S 
Common  Stock,  i 

Paid  In,  $ 

Par  value  oer  share,  i 

Amount  rjf  Prp.f«rr«>d  Stonk.  S 

Or  s 
sines 

pecial  Act?                                        .    .      _ 

Date  of  incorporatloh 

19               Commenced  bu 

s                                                               19 

OFFICERS 

Name  in  Fuil 

Address                                           '"'"MHd""'  |  Salaries  per  Y 

President 

(i 

1 

■ 

!•« 

Becretanr 



Treftaurer 

• 

1 

In  whom  is  vested  authority,  by  resolution  of  the  Board  of  Directors  to  sign  notes  binding  the  Corporation? 


(Please  ^ign  here) 


By 


I3ate  Bided-j 
Size  of  original  7j/2  x  lOj/2 


84 


the  Northwestern  National  .Bank,  Minneapolis,  Minn. 


For  the  purpose  of  procuring  credit  from  time  to  time  with  the  above  named  bank,  .the  following^  statement  is  furnished  as  a  true  and 
!  ite  statement  of  condition  of  undersigned  on 


ASSETS 


LIABILITIES 


on  Hand  and  in  Bank 

I    Receivable— Secured— Good... 
Receivable — Unsecured — Good . 

„i  Jnts  Receivable — Good 

Mortgages  'Receivable 

td  Mortgages  Receivable 


r  Real  Estate  (See  Schedule) 

iture.  Fixtures,  Farm  Machinery 

Products 

Stock 


Bills  Payable  to Bank. 

Other  Bills  Payable 

Accovmts  Payable 

Mortgage  on  Homestead ,. 

Other  Real  Estate  Mortgages  (See  Schedule) 

Chattel  Mor^ages 

Other  Liabilities 


I)cs  and  Bonds  (See  Schedule) . 


Total. 


Total  Liabilities. 

Net  Worth 

Total 


t  Amount  of  Bills  Receivable  Discounted  and  Not  Shown  Above? 

Vi  ingent  Liability  as  Endorser. as  Guarantor 

ingent  Liability  on  Bonds on  Leases 

t  Amount  of  Assets  are  Pledged  or  Hypothecated  in  any  way 

unt  of  Fire  Insurance Life  Insurance  (and  to  whom  payable) 


SCHEDULE  OF  REAL  ESTATE 


DESCRIPTION  OF  REAL  ESTATE 


OcKriplMa  •!  Mt|« 


TO  WHOM  PAYABLE 


SCHEDULE  OF  STOCKS  AND  BONDS 


PAR  VALUE  MARKET  VALUE 


ets  Secured  by  Collateral. 

!)ts  Secured  by  Collateral . 

-te ^ 


(Sign  here) 

Size  of  original  7^4  x  10 

85 


h  ciAL  STATEMENT       CLEVELAND  CLEARING  HOUSE  ASSOCIATION  FORM 


iNOIVIOUAL 
■MUFACTURIM  OR  MEBCMITiUE  l«B 


LOCATION  OF  PLANT 


iE  CLEVELAND  NATI6NAL  BANK,  Cleveland,  Ohio. 

FOR  THE  PURPOSE  OF  PROCURINQ  CREDIT  FROM  TIME  TO  TIME  WITH  YOU,  FOB  MY  NEGOTIABLE  PAPER  OR  OTHERWISE,  I  FURNISH  THE  FOL- 
AS  A  TRUE  AND  CORRECT  STATEMENT  OF  MY  FINANCIAL  CONDITION  ON  ,  10  .  AND  HEREBY  AGREE  TO 

YOU  IMMEDUTELY  IN  V7EITIN0.  OP  ANY  MATERI\LLY  UNFAVORABLE  CHANGE  IN  MY  FINANCIAL  CONDITION. '  INTHEABSENCE  OF  SUCH  NOTTCP 
LN^BELOW^'HE'Sm^^^^  ^  ^  CONTINUING  8TATEMENT?AND  THAT  MY  PECUNLLRY  REa^NSIBIUTYH^S 

(In  thb  Absencb  or  Am  Amotot,  Inssst  Cipmas  w  Statbumt  Fowb.    AaswiB  AiA  QmaiioNa  o:t  Fooowwi  Txaa.     Uii  m  Wo«os  "Yb."  "No"  or  "Nomb" 


UT  Woj,  Akbwib  thb  Qdmttons  Combctlt.    S 

tan  AT 

Borron 

or  FOOB 

TH  PlQS.) 

WIS 

ASSETS 

D0LUR3 

CENTS                                     UABIUTIES 

DOLLARS 

CENTS 

NOTES  PAYABLE  FOR  MERCHANDISE 

IN  BANK 

NOTES  PAYABLE  TO  BANKS 

S  RECEIVABLE  OF  CUSTOMERS- 
im  WITHIN  90  DAYS 

NOTES  PAYABLE  FOR  PAPER  SOLD 

3  RECEIVABLE  OF  CUSTOMERS- 
UE  BEYOND  90  DAYS 

NOTES  PAYABLE  TO  OTHERS 

UNT3  RECEIVABLE  OF  CUSTOMERS 

ACCOUNTS  PAYABLE-NOT  DUE 

niANDISE-FINISHED 

ACCOUNTS  PAYABLE-PAST  DUE 

:HANDISE-IN  PROCESS-UNnNISHED 

DEPOSITS  OF  MONEY  WITH  ME 

:handise-raw  material 

ANY  OTHER  CURRENT  LIABILITIES- 

(lTElnZC0NPAGS4) 

m  active  ASSETS-aTwna  on  Paoii  3) 

TOTAL   ACTIVE   ASSETS 

TOTAL  CURRENT  LIABILITIES 

FROM  onNTRnT.T.PnlrORMKKCUANDISE 

MORTGAGES  OR  LIENS  ON  REAL  ESTATE 

ALLIED  CONCERNS    } 

(FOR  ADVANCES 

CHATTEL  MORTGAGES 

;ks.  bonds  and  ina^tments 

ANY  OTHER  LIABILITIES-Itkhize 

D 

.DINGS 

HINERY.  EQUIPMENT  AND  FIXTURES 

SES.  WAGONS  AND  AUTOMOBILES 

TOTAL  LIABILITIES 

RESERVES— IiTMiza 

D  WILL.  PATENTS  AND  TRADE  MARKS 

ER  ASSETS-lT«rai 

NET  WORTH 

.. 

TOTAL 

TOTAL 

CONTINGENT  UABILHY  OF  ANY  KINO 

N  RECEIVABLES  DISCOUNTED  OR  PLEDGED 

N  ACCOMMODATION  PAPER  OR  ENDORSEMENTS 

N  NOTES  EXCHANGED  WITH  OTHERS 

TOMERS'  ACCOUNTS  SOLD  AND  ASSIGNED 

3UARANT0R  FOR  OTHERS  ON  NOTES.  CONTRACTS.  ETC. 

BONDS  OR  UNFINISHED  CONTRACTS 

LEASES                                                                                                                                                                                                

Siz 

eof 

origii 

8 

lal  7%  X  105^ 
7 



I». 

EXPENSE 

INCOME 

COST  OF  MATERIAL  OR  MERCHANDISE  CONSUMED 

NET  SALES 

ACTUAL  EXPENSE  OF  CONDUCTINC  BUSINESS 
iHCLOTiNd  RewT,  Tatbb,  Inbotancb,  Etc. 

FROM  INVESTMENTS 

8.ALARY  DRAWN  BY  MYSELF 

FROM  DISCOUNTS  ON  PURCH-ASES 

INTEREST  ON  BORROWED  MONEY 

FROM  OTHER  S0URCE&-Iteui2« 

BAD  DEBTS  CHARGED  OFF 

DEPRECIATION  CHARGED  OFF 

NET  PROFITS 

TOTAL 

TOTAL 

RECONCILEMENT  OF  NET  WORTH 

NET  WORTH  AT  CLOSE  OP  PREVIOUS  FISCAL  YEAR $. 

LESS  CHARGES  NOT  APPUCABLE  TO  CURRENT  YEAR $ »» 

ADD  NET  PROFITS  AS  ABOVE ^ 

LE&S-WITHDRAWALS.  OTHER  THAN  SALARY  AS  ABOVK. , 

NET  WORTH-(See  firat  p«7e) 


DETAILS  REUTIVE  TO  ASSETS 
CASH-NAMES  OF  ALL  BANKS  WHERB  ACCOUNTS  ARB  MAINTAINED. 


ARE  ANY  ACCOUNTS  SUBJECT  TO  NOTICE  BEFORE  WITHDRAWALT AMOUNT  $ 

DOES  THE  AMOUNT  REPORTED  AS  CASH  ON    HAND  CONTAIN  ANYTHING  OTHER  THAN  LEGAL  MONEY?....  

NOTES  RECEIVABLE  OF  CUSTOMERS-WHAT  AMOUNT  DOES  NOT  REPRESENT  MERCHANDISE  SALESt ... 

REPRESENTS  WHATT - 

WHAT  AMOUNT  REPRESENTS  OPEN  ACCOUNTS  SETTLED  BY  NOTES? AMOUNT  YOU  PEOBABIY  WILL  NOT  BE 

TO  COLLECT? AMOUNT  OVERDUE? AMOUNT  RENEWED  OR  BJCTENDBDt 

ACCOUNTS  RECEIVABLE  OF  CUSTOMERS-WHAT  AMOUNT  DOES  NOT  REPRESENT  MERCHANDISE  SALES? 

REPRESENTS  WHAT? 

AMOUNT  YOU  PROBABLY  WILL  NOT  BE  ABLE  TO  COLLECT? AMOUNT  OVSRDUB?. 

WHAT  ABE  YOUR  AVERAGE  TERMS  OF  SALE? «. 

GIVE  NAMES  OF  A  FEW  CONCERNS  TO  WHICH  YOU  SELL  IN  URGE  QUANTITIES: 


MERCHANDISE-LAST  INVENTORY  TAKEN  BY  WHOM? WHEN? 

VALUED  AT  COST,  OH  MARKET  PRICE  AT  DATE  OF  INVENTORY.  OR  ON  WHAT  BASIS— FOR  FINISHED? 

FOR  UNFINISHED  IN  PilOCESS? FOR  RAW  MATERIAL? AMOUNT  PLEDGED  AS  SECURITY? 

ANY  RECENTLY  RECEIVED  AND  INCLUDED  IN  YOUR  ASSETS  FOR  WHICH  THE  INVOICES  HAVE  NOT  YET  BEEN  ENTERED  AS  ACCOUNTS  PAYABLE?. 


AMOUNT  IN  OUTSIDE  WAREHOUSES? 

AMOUNT  HELD  UNDER  TRUST  RECEIPT? ; UNDER  CONSIGNMENT? 

IS  STOCK  FRESH  AND  SALABLE  THROUGHOUT? AVERAGE  AMOUNT  OF  STOCK  CARRIED?. 

WHAT  AMOUNT  HAS  BEEN  CHARGED  TO  DEPRECIATION  DURING  THE  PAST  YEAR  ON  THIS  ITEM? 

STOCKS,  BONDS  AND  INVESTMENTS-GIVE  DESCRIPTION  AND  BOW  VALUED: 


MACHINERY,  EQUIPMENT  AND  HXTURES-ASSESSED  VALUE  t 

WHAT  AMOUNT  HAS  BEEN  CHARGED  TO  DEPRECIATION  DURING  THE  LAST  YEAR  ON  THIS  ITEM?  . 


Size  of  original  7j4  x  10^ 
88 


f  tJSED  TV  BOSLNfSS  t.A^..^.....^ 
NO  BUIUMNGS:—  i 

?OTHER  t 


DBSCRipnoN  ANB  Location 


TlTLS  IN  WHOSa  Naub 


Appruseo  V&LCX 


MOBTtUOSS 


RSNTAtS  ElCXITXS 

Last  Fiscal  YcAB 


WHOM  APPRAISEDT WHENT. 

300K  VALDE  HAS  DECREASED  OR  INCREASED  DURING  THE  YEAR.  ACCOUNT  FOR  SAME 


n  YOU  ANY  LEASEHOLDS  NOT  MENTIONED  IN  Y0UR.ASSET8T.., GIVE  DETAILS. 


ACTIVE  ASSETS:-! 


lOM  CONTROLLED  OR  ALUED  CONCERNS:- 


Namb  or  CoNCBBif 


DETAILS  REUTIVE  TO  LlABiUTICS 
PAYABLE-mME  YOUR  BANKS  AND  BROKERS  AND  LINB  WITH  EACH: 


lAT  TIME  OF  THE  YEAR  DO  YOU  BORROW  OF  YOUR  BANKSr THROUGH  BR0KES8T. 

ATE  MAXIMUM  AMOUNT  BORROWED  FROM  ALL  SOURCES  DURING  FISCAL  YEAR  JUST  CLOSED  S 

»  YOUR  BRANCHES  OR  ALLIED  CONCERNS  BORROW  LOCALLY? WHERBT , 

►  YOU  BOBiROW  CONTINUOUSLY  IN  OPEN  MARKET?, FOR  MERCHANDISE?-. 

AMOUNT  OF  YOUR  NOTES  PAYABLE  SECURED  BY  COLLATERAL  I 

■8CR1BB  THE  COLLATERAL , _ 


INTS  PAYABLE-WHAT  ARE  YOUR  AVERAGE  TERMS  OF  PURCHASE?.. 

)  YOUTMSCOUNT? _ ANTICIPATE?. 

mCHASE  IN  LARGE  QUANTITIES: „ 


NAME  A  FEW  CONCERNS  FROM  WHOM  YOtf 


WT8  OF  MONEY  WITH  MB-ON  TIME  OR  DEMAND? ,>.,«».^ 

•  lOM  WHOM? ^.^ RATE  PER  CENT  PAID?. 


TEL  MORTQAQES-TO  WHOM?^. DATE  OP  MORTGAGE? ^ TERMS  OF  PAYMENT? 

H  WHAT  ASSETS  A  LEEN? DOES  ITREPRESENT  A  PARTTOF  PUECHABB  PRICE? 

OES  IT  REPRESENT  BORROWED  MONEY? , , 

•  ES-ARB  YOU  LEABINa  ANY  PROPERTY? WHAT  ARE  THE  TERMS  OF  THE  LEASBS?....-*..««»aw*ii,s3v-v.i 


Size  of  original  7%  x  10}^ 

89 


01  HER  CURRENT  UABIUTII 


MISCELLANEOUS 

)N8URANCE-0N  MERCHANDISE  ». ..;.;.-r;:i:?....:...r CREDIT  S UABOmf  $. 

LIFBI^ WHOISaBBBEOTFlCIARYT....... , ,»..^... 

HOW  LONo'eNGAGED  IN  PRESENT  BUSINESS? 

WHAT  AMOUNT  OP  CAPITAL  DID  YOU  START  WITH  AND  OF  WHAT  DID  IT  CONSISTT 


WHAT  AMOUNT  OF  CAPITAL  HAVE  TOO  CONTRIBUTED  6INCET 

IS  THERB  ANY  OTHER  PERSON  INTERESTED  IN  YOUR  BUSINESS,  EITBER  AS  SPECIAL  OR  UMITBD  PARTNERt. 


ARE  YOU  A  PARTNER  IN  ANY  FIRMT ^ 

WHAT  IN  YOUR  OPINION  IS  THE  NET  WORTH  OP  EACH  ENDORSER  ON  YOUR  NOTBST 


HAVE  YOU  ANY  ASSETS,  OTHER  THAN  REAL  ESTATE.  PLEDOTD  OR  HYPOTHECATED  IN  ANY  WAYT, 


ANY  INDIVIDUAL  DEBTS  NOT  INCLUDED  IN  THE  8TATEMENTT .....i 

ANY  INDIVIDUAL  ASSETS  NOT  INCLUDED  IN  THE  STATEMENT* .^ , ......s-. 

TIME  OF  YEAR  RECEIVABLES  GENERALLY  MAXIMUM MINIMUM 

TIME  OF  YEAR  MERCHANDISE  GENERALLY  MAXIMUM MINIMUM 

STATE  GROSS  H^LES  FOR  THE  PAST  THREE  YBARS-W • »......• ».. •.•..... 

WHERE  IS  YOUR  PRINCIPAL  SALES  TERRITORYt i,..ii...«r.i....i..... 

IF  YOUR  BOOKS  HAVE  BEEN  AUDITED  BY  A  CERTIFIED  FUBUC  ACCOUNTANT.  GIVE  NAME  OF  ACCOUNTANT  AND  DATE  OF  AUDIT. 


ARE  THERE  ANY  JUlXlMENTS  UNSATISFIED.  OR  SUIT&PENDING  AGAINST  YOU.  AND  FOR  WHAT  AMOUNTr . 


GIVE  DATE  YOD  SBGULABLT  TAKE  INVENTORY  AND  CLOSE  YOUR  BOOKSl. 


The  foreooino  •tctMntnto  and  dtUlls  psrUlnIno  Uiarato.  both  printed  and  writtan.  havt  baan  oarafully  raad  by  tha  undarslonad.  and  I  hereby  voli 
daolara  and  oartlfy  that  aama  Is  a  full  and  oorraot  axhibit  af  my  finanoial  oondltion. 

SIGN  HERB... ..*....... 

DATE  nONKD^....^........^^... ..If. 


NOTE:     If  you  hava  any  difficulty  In  flllino  In  tha  foraooino  statamenta  and  quastlonary.  tha  Cradit  Oapartmant  of  thia  bank  it  praparad  to  axtanc 
aourtaout  and  Intallloent  aarvtoat  In  fttat.  wa  aallolt  your  oo-operatlon  and  aoqualntanca  with  our  oradit  mathod*. 


Size  of  original  7J4  x  lOj^ 


90 


iciAL  STATEMENT       CLEVELAND  CLEARING  HOUSE  ASSOCIATION  FORM 

:    OP  FIRM 

PARTNERSHIP 

i  ss 

.   >FnCE                                                                                                                        LOCATION  OF  PUNT 

,   HE8 

HE  CLEVELAND  NATIONAL  BANK,  Cleveland,  Ohio. 

FOR  THE  PURPOSE  OP  PROCURING  CREDIT  FROM  TIME  TO  TIME  WITH  YOU.  FOR  OUR  NEOOTIABUB  PAPER  OR  OTHER\ 
f>  A9  A  TRUE  AND  CORRECT  STATEMENT  OF  OUR  HNANCIAL  CONDITION  ON                                                                  10 

VISE.  WE  FURNIfiH  THE  FOL. 

_.  AND  HEREBY  AGREE  TO 
3  ABSENCE  OF  SUCH  NOTICE 
<URY  RESPONSIBILITY  HAS 

VoBoe  "Ym,"  "No"  or  "Noi«"" 

EW  AND  FULL  WRITTEN  STATEMENT.  THIS  IS  TO  BE  CONSIDERED  A3  A  CONTINUING  STATEMK^-^AND  TEUT  OUR  PECU 
OLEN  BELOW  THE  CONDITION  HEREIN  SET    FORTH.                                                                         s-^r-XHi.  Ai^u  inAi  yjva.  rji,uu 
(In  ihb  Absench  or  Ant  Abount.  Insert  Cirhsbs  in  SwrtMBNT  Forms.    Anbwbi  Au.  QutanoNs  oh  Toujowsho  Paow.     Van  rm  \ 
?wa  Wn.1.  ANdWEB  THB  Questions  Cosrsictlt.    Sign  at  Bottosi  or  Fourth  Paoe.) 

ASSETS 

DOLLARS 

CENTS 

UABIUTIES 

DOLLARS           1 

CENTS 

3  ON  HAND 

• 

NOT'ES  PAYABLE  FOR  MERCHANDISE 

a  IN  BANK 

NOTES  PAYABLE  TO  BANKS 

ES  RECEIVABLE  OF  CUSTOMERS- 
•    3UE  WITHIN  90  DAYS 

NOTES  PAYABLE  FOR  PAPER  SOLD 

ES  RECEIV.\BLE  OP  CUSTOMERS- 
DUE  BEYOND  9C  DAYS 

NOTES  PAYABLE  TO  PARTNERS 

OUNTS  RECEIVABLE  OF  CUSTOMERS 

NOTES  PAY.iBLE  TO  OTHERS 

ICHANDISB-FINISHED 

ACCOUNTS  PAYABLB-NOT  DUE 

TCHANDISE-IN  PROCESS-UNFINISHED 

ACCOUNTS  PAYABLE-PAST  DUE 

RCHANDISE-RAW  MATERLAL 

ACCOUNTS  PAYABLE  TO  PARTNERS 

lER  ACTIVE  ASSETS-aTEWSB  ok  Paok  3) 

DEPOSITS  OF  MONEY  WITH  THIS  COMPANY  BY 
PARTNERS  AND  OTHERS 

ANY  OTHER  CURRENT  LIABIUTIBS- 
(Itemizk  on  Paob  4) 



.... 

1       1 

TOTAL   ACflVE   ASSETS 

TOTAL  CURRENT  LIABILITIES 

R  PROM  CONTROLLED  )  FOB  MERCHANDISE 

MORTGAGES  OR  LIENS  ON  REAL  ESTATE 

R  ALUED  CONCERNS 

(FOR  ADVANCES 

CHATTEL  MORTGAGES 

)CK8.  BONDS  AND  INVESTMENTS 

ANY  OTHER  LIABILITIES-IwimB 

iD 

•"  [LDINGS 

•  CHINERY.  EQUIPMENT  AND  FIXTURES 

..  RSE3.  WAGONS  AND  AUTOMOBILES 

TES  RECEIVABLE-DUE  FROM  PARTNERS 
AND  EMPLOYEES 

TOTAL  LIABILITIES 

COUNTS  RECEIVABLE-DUE  FROM 
PARTNERS  AND  EMPLOYEES 

RESERVES-lTMua 

OD  WILL,  PATENTS  AND  TRADE  MARKS 

HER  ASSETS-lTEtoi. 

,.. 

.... 

NET  WORTH 

TOTAI, 

TOTAL 

1 
1 

1 

CONTINGENT  LIAWLITY  OF  ANY  KINO 

"  'ON  RECEIVABLE*  DISCOUNTED  OB  PLEDGED 

>0N  ACCOMMODATION  PAPER  OR  ENDORSEMENTS 

"ON  NOTES  EXCHANGED  WTTH  OTHERS 

1 

f  OTOMERS"  ACCOUNTS  SOLD  AND  ASSIGNED 

I  OTJARANTOR  for  others  on  notes,  CONTRACTS.  ETC. 

)R  BONDS  OR  unfinished  CONTRACTS 

1 

)R  LEASES 

1 

Siz 

e  of  < 

Drigir 

9 

lal  714  X  101/2 
1 

CONDENSED  PROHT  AND  LOSS  STATEMENT  FOR  FISCAL  YEAR  E 

NDINO 

la 

EXPENSE 

INCOME 

COST  OF  MATERIAL  OR  MERCHANDISE  CONSUMED 

NET  SALES 

i 

ACTUAL  EXPENSE  OF  CONDUCTING  BUSINESS 
IvcLUDiNfl  Rent.  Tatxs.  Inboranci,  Etc 

FROM  INVESTMENTS 

n   n 

SALARIES  PAID  TO  PARTNERS 

FROM  DISCOUNTS  ON  PURCHASES                          ! 

1 

INTEREST  ON  BORROWED  MONEY 

FROM  OTHER  SOURCES-Itbhub 

BAD  DEBTS  CHARGED  OFF 

DEPRECIATION  CHARGED  OFF 

NET  PROFITS 

TOTAL 

TOTAL 

RECONCILEMENT  OF  N^  WORTH 

JQET  WORTH  AT  CLOSE  OF  PREVIOUS  nSCAL  YEAR". t I 

LESS  CHARGES  NOT  APPLICABLE  TO  CUREENT  YEAR $ et.. 


ADD  NET  PROFITS  AS  ABOVE .x $^ 

LE&S-WITHDRAWALS  BY  PARTNERS.  OTHER  THAN  SALARIES  AS  ABOVE ... 

NET  WORTH— (See firnt  paw) 


DETAILS  REUTIVE  TO  ASSETS 
CASH-NAMES  OF  ALL  BANKS  WHERE  ACCOUNTS  ARE  MAINTAINED 


ARE  ANY  ACCOUNTS  SUBJECT  TO  NOTICE  BEFORE  WITHDRAWALT AMOUNT  t 

DOES  THE  AMOUNT  KBPORTBD  AS  CASH  ON    HAND  CONTAIN  ANYTHING  OTHER  THAN  LEGAL  MONEY?....  

NOTES  RECEIVABLE  OF  CUSTOMERS-WHAT  AMOUNT  DOES  NOT  REPRESENT  MERCHANDISE  8ALE3T 

REPRESENTS  WHATT , 

WHAT  AMOUNT  REPRESENTS  OPEN   ACCOUNTS  SETTLED  BY  NOTEST AMOUNT  YOU  PROBABLY  WILL  NOT 

TO  COLLECTT AMOUNT  OVERDUE? AMOUNT  RENEWED  OR  EXTENDEDT 

ACCOUNTS  RECEIVABLE  OF  CUSTOMERS-WHAT  AMOUNT  DOES  NOT  REPRESENT  MERCHANDISE  SALES? 

REPRESENTS  WHAT? 

AMOUNT  YOU  PROBABLY  WILL  NOT  BE  ABLE  TO  COLLECTT AMOUNT  OVERDUE? 

WHAT  ARE  YOUR  AVERAGE  TERMS  OF  SALE? , 

GIVE  NAMES  OF  A  FEW  CONCERNS  TO  WHICH  YOU  SELL  IN  LARGE  QUANTITIES: , 


MERCHANOISE-LAST  INVENTORY  TAEEN  BY  WHOM? WHEN?..* 

VALUED  AT  COST.  OR  MIARKET  PRICE  AT  DATE  OF  INVENTORY  OR  ON  WH.AT  BASIS— FOR  FINISHED? 

FOR  UNFINISHED  IN  PRbCESS? FOR  RAW  MATERIAL? AMOUNT  PLEDGED  AS  SECURITY? 

ANY  RECENTLY  RECEIVED  AND  INCLUDED  IN  YOUR  ASSETS  FOR  WHICH  THE  INVOICES  HAV?  NOT  YET  BEEN  ENTERED  AS  ACCOUNTS  PAYABLE?. 


AMOUNT  IN  OUTSIDE  WAREHOUSES? 

AMOUNT  HELD  UNDER  TRUST  RECEIPTT : UNDER  CONSIGNMENT? 

IS  STOCK  FRESH  AND  SALABLE  THROUGHOUT? AVERAGE  AMOUNT  OF  STOCK  CARRIED?. 

WHAT  AMOUNT  HAS  BEEN  CHARGED  TO  DEPRECIATION  DURING  THE  PAST  YEAR  ON  THIS  ITEMt 

JTOCKS.  BONDS  AND  INVESTMENTS-GIVE  DESCRIPTION  AND  HOW  VALUED: 


(MACHINERY.  EQUIPMENT  AND  FIXTURES- ASSESSED  VALUE  S. 


WHAT  AMOUNT  HAS  BEEN  CHARGED  TO  DBF»>SClATION  DURING  THE  LAST  YEAR  ON  THIS  ITEMf , 

Size  of  original  7^  x  10j4 
92 


scBimoN  AKB  Location 


I  BUILOINQS: 


( USED  IN  BUSINESS  t. 


OTHER!. 


Tnu  w  Waoai  Sua 


Valui 


ArPBims  Valob 


RiNTiLS  REcairxo  DmiNa 


HOM  APPRAISED! ^ WHBNT, 

^  OK  VALUE  HAS  DECBKASED  OB  INCMBASED  DUWNQ  THE  YBAB,  ACJCOUNT  FOR  SAME 


you  ANY  LEASEHOLDS  NOT  MENTIONED  IN  YOUR  AflSBTBT GIVE  DEXAILB... 


mVE  ASSETS;— Imaza. 


M  CONTROLLED  OR  ALLIED  CONCERNS:- 


Xaks  or  CoNCSBN 


Fob  MEBCtUNDssa 


TsBia 


CEIVABLE-DUE  FROM  PARTNERS  AND  EMPLOYEES. 


Ton  OB 
Demanv 


Dat«  or 
Kvn 


lenk  R>inwA>>  Eiibsb  at 
VaotM  OB  Dt  FabtT 


S  RECEIVABLE-DUE  FROM  PARTNERS  AND  EMPLOYEES. 


Is  rr 
SacxniBDT 


AoOOUMT  RlFRESBNTS  WhATT 


DETAILS  REUTIVE  TO  LiABIUTiES 
AYABLE-NAME  YOUR  BANES  AND  BROKERS  AND  LINE  WITH  EACH:. 


•  TTIME  OF  THE  YEAR  DO  Y0[?  BORROW  OF  YOUR  BANKST ; THROUGH  BROKERSt. 

t  MAXIMUM  AMOUNT  BORROWED  FROM  ALL  SOURCES  DURING  FISCAL  YEAR  JUST  CLOSED  $ 

rOUR  BRANCHES  OR  ALLIED  CONCERNS  BORROW  LOCALLY? , WHEREt 

OU  BORROW  CONTINUOUSLY  IN  OPEN  MARKET? FOR  MBRCHANDISF? 

■  ERWISET AMOUNT  OF  YOUR  NOTES  PAYABLE  SECURED  BY  COLLATERAL  t 

3RIBETHE  COLLATERAL , 


TS  PAYABLE-WHAT  ARE  YOUR  AVERAGE  TERMS  OF  PURCHASBT.... , 

YOU  DI8C0UNTT ANTICIPATEir NAME  A  JEW  CONCERNS  FROM  WHOM  YOU 

CHASE  IN  LARGE  QUANTITIES: 


Size  of  original  7%  x  lOj^ 

93 


lOEPOSITS  OF  MOKEY  WITH  TBIS  COMPANY  BY  PARTNERS  OR  OTHERS-ON  TIME  OR  DEMANDr , 

FROM  WHOMT RATE  PER  CENT  PAIDt. 


CHATTEL  MORTGAQES-TO  WHOMr. DATE  OF  MORTGAGET TERMS  OF  PAYMENTT. 

ON  WHAT  ASSETS  A  LIENT...;.„ DOES  IT  REPRESENT  A  PART  OF  PURCHASE  PRICE? 

DOES  IT  REPRESENT  BORROWED  MONEY? 


[LCASES-ARE  YOU  LEASING  ANY  PROPERTY? , WHAT  ARE  THE  TERMS  OF  THE  LEASES?. 


OTHER  CURRENT  LlAfilLITIES-iniazi: 


iNSURANCE-ON  MERCHANDISE  |. 
ENOORSERS-WHAT.m  YOUR  OPINION, 


MISCELLANEOUS 

CREDIT  $ LIABILITY  t 

,  IS  THE  NET  WORTH  OF  EACH  ENDORSER  OUTSIDE  OF  INTEREST  IN  ' 


Namss  or  OcNxaii.  VAtmam. 

ASDREM. 

Amoott  CcvnuBCTiD. 

OTOiMNtr 

Namcb  or  Spictti.  Partjjirs. 

AMOcinpCojmuBtrBD. 

Uwtt 

CONNECTIONS  OF  EACH  PARTNER  IK  OTHER  BUSINESS.  IF  ANY. 


GIVE  DATE  OF  ORGANIZATION  OF  PARTNERSHIP DATE  OF  EXPIRATION 

TIME  OF  YEAR  RECEIVABLES  GENERALLY  MAXIMUM MINIMUM 

TIME  OF  YEAR  MERCHANDISE  GENERALLY  MAXIMUM MINIMUM .-. 

STATE  GROSS  SALES  FOR  THE  PAST  THREE  YEARS-19 % 19 t 19 1 

WHERE  IS  YOUR  PRINCIP^VL  SALES  TERRITORY? 

IF  YOUR  BOOKS  HAVE  BEEN  AUDITED  BY  A  CERTIFIED  PUBLIC  ACCOUNTANT.  GIVE  NAME  OF  ACCOUNTANT  AND  DATE  OF  AUDIT. 


ARE  THERE  ANY  JUDGMENTS  UNSATISFIED,  OR  SUITS  PENDING  AGAINST  YOUR  FIRM  OR  ANY  MEMBER  THEREOF.  AND  FOR  WHAT  AMOUNT?.. 


GIVE  DATE  YOU.  REGULARLY  TAKE  INVENTORY  AND  CLOSE  YOUR  BOOKS. 


The  foregoing  ataUments  and  deUils  pertaining  thereto,  both  printed  and  written,  have  been  carefully  read  by  the  underalgned.  and  I  hereby 
declare  and  certify  that  eame  Is  a  full  and  correct  exhibit  of  our  financial  condition. 


DATE  SIGNED »9 BY. 


(Mann  or  m<u) 


NOTE:      If  you  have  any  difficulty  In  filling  In  the  foregoing  elatemenU  and  queationary,  the  Credit  Department  of  this  bank  is  prepared  to  'xl 
oourteoue  and  intelligent  aervioe :   In  fact,  we  aollolt  your  co-operation  and  acqualntanoe  with  our  credit  method*. 

Size  of  original  7}4  x  10^ 
94 


—    ICIAL  STATEMENT 

lATE  NAME 

COftPORATiON 

-    SS 

^-..      )FFICE                                                                                                                              LOCATION  OP  PLANT 

HES 

THE  CLEVELAND  NATIONAL  BANK,  Cleveland.  O. 

FOR  THE  PURPOSE  OF  PROCURING  CREDIT  FROM  TIME  TO  TIME  WITH  YOU.  FOR  OUR  NEGOTIABLE  PAPER  OR  OTHER 
G  AS  A  TRUE  AND  CORRECT  STATEMENT  OF  OUR  FINANCUL  CONDITION  ON                                                                  19 

WISE.  WE  FURNISH  THE  iOv 

^,  AND  HEREBY  AGREE  TO 
E  ABSENCE  OF  SUCH  NOTICE 
NIARY  RESPONSIBILITY  HAS 

Worm  "Ym."  "No-  or  "Noh." 

■  YOU  IMMEDIATELY  IN  WRITING.  OF  ANY  MATERIALLY  UNFAVORABLE  CHANGE  IN  OUR  FINANCIAL  CONDITION.  '  IN  TH 
EW  AND  FULL  WRITTEN  STATEMENT.  THIS  IS  TO  BE  CONSIDERED  AS  A  CONTINUING  STATEMENT.  AND  THAT  OUR  PECU 

-  ILLEN  BELOW  THE  CONDITION  HEREIN  SET  FORTH. 

(In  the  Absen-cb  op  Ant  Amount.  Insert  CiPHiSaa  in  SrATiartNT  Forms.    Answer  All  Qokthonb  on  Followino  Paqbs.     Ubb  thb 

-  'het  Wn-L  Answer  the  Questions  Correctly.    Sign  at  Bottom  op  Iocrth  Paqe.) 

ASSETS 

DOLLARS 

CENTS 

LIABILITIES 

DOLLARS 

CENTS 

I  ON  HAND 

NOTES  PAYABLE  FOR  MERCHANDISE 

., .      I  IN  BANK 

NOTES  PAYABLE  TO  BANKS 

ES  RECEIVABLE  OF  CUSTOMERS— 
DUE  WITHIN  90  DAYS 

NOTES  PAYABLE  FOR  PAPER  SOLD 



ES  RECEIVABLE  OF  CUSTOMERS- 
•   DUE  BEYOND  flO  DAYS 

NOTES  PAYABLE  TO  OFFICERS.  DIRECTORS  AND 
STOCKHOLDERS 

■    OUNTS  RECEIVABLE  OF  CUSTOMERS 

NOTES  PAYABLE  TO  OTHERS 

"   ^CHANDISE— FINISHED 

ACCOUNTS  PAYABLE-NOT  DUE 

:i!;»   ICHANDISE-IN  PROCESS-UNFINISHED 

ACCOUNTS  PAYABLE-PAST  DUE 

'^    ICHANDISE-RAW  MATERIAL 

ACCOUNTS  PAYABLE  TO  OFFICERS.  DIRECTORS 
AND  STOCKHOLDERS 

lER  ACTIVE  ASSETS-dTEMizE  on  Paof,  3) 

DEPOSITS  OP  MONEY  WITH  THIS  COMPANY  BY 
OFFICERS  AND  OTHERS 

— 

ANY  OTHER  CURRENT  LIABILITIES- 
(Itemize  on  Page  4) 

""■ 

:« 

^                   TOTAL   ACTIVE   ASSETS 

TOTAL  CURRENT  LIABIUTIES 

~~    V.  FROKf  CONTHOT.T.En  )fOR  MERCHANDISE 

MORTGAGES  OR  LIENS  ON  REAL  ESTATE 

—    R  ALLIED  CONCERNS 

FOR  ADVANCES 

BONDED  DEBT 

)CKS,  BONDS  AND  INVESTMENTS 

CHATTEL  MORTGAGES 

ND 

ANY  OTHER  LIABILITIES-IrEMms 

ILDINGS 

iCniNERY.  EQUIPMENT  AND  FIXTURES 

...  )RSES.  WAGONS  AND  AUTOMOBILES 

' 

)TES  RECEIVABLE-DUE  FROM  OFFICERS. 
-     STOCKHOLDERS  AND  EMPLOYEES 

TOTAL  LIABILITIES 

;COUNTS  RECEIVABLE— DUE  FROM  OFFICERS. 
•••■     STOCKHOLDERS  AND  EMPLOYEES 

RESERVES— Itemize 

~  )0D  WILL.  PATENTS  AND  TRADE  MARKS 

■■■   'HER  ASSETS-lTEMRB 

.... 

CAPTTAL  STOCK-PREFERRED  OUTSTANDING 

CAPITAL  STOCK-COMMON  OUTSTANDING 

UNDIVIDED  SURPLUS 

TOTAL 

TOTAL 

CONTINGENT  UABILITY  OF  ANY  KIND 

"  PON  RECEIVABLES  DISCOUNTED  OR  PLEDGED 

PON  ACCOMMODATION  PAPER  OR  ENDORSEMENTS 

..  PON  NOTES  EXCHANGED  WITH  OTHERS 

DSTOMERS'  ACCOUNTS  SOLD  AND  ASSIGNED 

'  S  GUARANTOR  FOR  OTHERS  ON  NOTES,  CONTRACTS.  ETC. 

OR  BONDS  OR  UNFINISHED  CONTRACTS 

•Ofi  LE\SES 

Size 

JOf  c 

)rigin 

91 

) 

CONOENSED  PftOriT  AND  LOSS  STATEMENT  FOR  FISCAL  YEAR  E 

NOINQ 

14 

EXPENSE 

1 

INCOME 

COST  OF  MATERIAL  OR  MERCHANDISE  CONSUMED 

1 

NET  SALES 

1 

ACTUAL  EXPENSE  OF  CONDUCTING  BUSINESS 
Includino  Rent,  Taxes   Insdbanci:,  Etc. 

1 

FROM  INVESTMENTS 

SALARIES  PAID  TO  OFFICERS 

FROM  DISCOUNTS  ON  PURCHASES 

t 

INTEREST  ON  BORROWED  MONEY  AND  BONDS 

FROM  OTHER  SOURCES-Itemize 

1 

BAD  DEBTS  CHARGED  OFF 

_ 

DEPRECIATION  CHARGED  OFF 

NET  PROFITS 

TOTAL 

TOTAL 

.    1 

RECONCILEMENT  OF  SURPLUS 

UNDIVIDED  SURPLUS  AT  CLOSE  OF  PREVIOUS  FISCAL  YEAR $ 

LESS  CHARGES  NOT  APPLICABLE  TO  CURRENT  YEAR < =»- 

ADD  NET  PROFITS  AS  ABOVE »^ 

PREFERRED  ( PER  CENT) »- 

COMMON  ( PER  CENT) *^ 

UNDIVIDED  SURPLUS 


LESS  DIVIDENDS 


DETAILS  RELATIVE  TO  ASSETS 
CASH-NAMES  OF  ALL  BANKS  WHERE  ACCOUNTS  ARE  MAINTAINED 


ARE  ANY  ACCOUNTS  SUBJECT  TO  NOTICE  BEFORE  WITHDRAWAL? AMOUNT  S 

DOES  THE  AMOUNT  REPORTED  AS  CASH  ON    HAND  CONTAIN  ANYTHING  OTHER  THAN  LEGAL  MONEY? 

NOTES  RECEIVABLE  OF  CUSTOMERS-WHAT  AMOUNT  DOES  NOT  REPRESENT  MERCHANDISE  SALES? 

REPRESENTS  WHAT? 

WHAT   AMOUNT  REPRESENTS   OPEN   ACCOUNTS   SETTLED   BY   NOTES? AMOUNT  YOU'PROBABLY  \nLL  NOT  BE  A 

TO  COLLECT? AMOUNT  OVERDUE? AMOUNT  RENEWED  OR  EXTENDED? 

ACCOUNTS  RECEIVABLE  OF  CUSTOMERS-WHAT  AMOUNT  DOES  NOT  REPRESENT  MERCHANDISE  SALES? 

REPRESENTS  WHAT? 

AMOUNT  YOU  PROBABLY  WILL  NOT  BE  ABLE  TO  COLLECT? AMOUNT  OVERDUE? 

WHAT  ARE  YOUR  AVERAGE  TERMS  OF  SALE? jm 

.    GIVE  NAMES  OF  A  FEW  CONCERNS  TO  WHICH  YOU  SELL  IN  LARGE  QUANTITIES: 


MERCHANDISE-LAST  INVENTORY  TAKEN  BY  WHOM? WHEN? 

VALUED  AT  COST.  OR  MARKET  PRICE  AT  DATE  OF  INVENTORY  OR  ON  WHAV  BASIS— FOR  FINISHED? 

FOR  UNHNISHED  IN  PROCESS? FOR  RAW  MATEMAL? AMOUNT  PLEDGED  AS  SECURITY? 

ANY  RECENTLY  RECEIVED  AND  INCLUDED  IN  YOUR  ASSETS  FOR  WHICH  THE  INVOICES  HAVE  NOT  YET  BEEN  ENTERED  A3  ACCOUNTS  PAYABLE?. 


AMOUNT  IN  OUTSIDE  WAREHOUSES? i 

AMOUNT  HELD  UNDER  TRUST  RECEIPT? UNDER  CONSIGNMENT? 

IS  STOCK  FRESH  AND  SALABLE  THROUGHOUT? AVERAGE  AMOUNT  OF  STOCK  CARRIED?. 

WHAT  AMOUNT  HAS  BEEN  CHARGED  TO  DEPRECIATION  DURING  THE  PAST  YEAR  ON  TlilS  ITEM? 

STOCKS,  BONDS  AND  INVESTMENTS-GIVE  DESCRIPTION  AND  HOW  VALUED: 


MACHINERY.  EQUIPMENT  AND  RXTURES-ASSESSED  VALUE  • 

WB&T  AMOUNT  HAS  BECN  CHARGED  TO  DEPRECIATION  DURING  THE  LAST  YEAR  ON  THIS  ITEMT . 

Size  of  original  7%  x  10^ 

96 


;NliND  BUILDINGS:— 

'  cRiPTioN  AN-i  Location 

TtTLB  tK  WbosB  NaMI 

Assessed  Vaixb 

Appraised  Valci 

MOBIOAQIS 

Ioturanci 

RjwTALS  Received  Dubinq 
Un  Fiscal  YtAa 

$ 

$ 

$ 

S 

%. 

I  WHOM  APPRA.ISEDT WHENT.: 

IBOOK  VALUE  HAS  DECREASED  OR  INCREASED  DURING  THE  YEAR.  ACCOUNT  FOR  SAME 

JVF,  Yon  ANY  LEASEHOI.nS  NOT  MENTIONED  IN  YOTTR  ASSETS?.                                                                                        niVR  DRTAII.*? 

ICTIVE  ASSETS:— Ii»iii2«. 


OM  CONTROLLED  OR  ALLIED  CONCERNS: 


Name  or  Concern 


For  Merchandise 


EIVABLE-DUE  FROM  OFFICERS.  STOCKHOLDERS  AND  EMPLOYEES: 


Is  IT  A  Renewal  Either  in 
Wboi  ■  or  in  Part? 


»ITS  RECEIVABLE-DUE  FROM  OFFICERS,  STOCKHOLDERS  AND  EMPLOYEES:- 


Naioi 


Account  Represents  What? 


DETAILS    RELATIVE  TO  LIABILITIES 
PAYABLE-NAME  YOUR  BANKS  AND  BROKERS  AND  LINE  WITH  EACH: 


[AT  TIME  OF  THE  YEAR  DO  YOU  BORROW  OF  YOUR  BANKST THROUGH  BROKERS?. 

ITE  MAXIMUM  AMOUNT  BORROWED  FROM  ALL  SOURCES  DURING  FISCAL  YEAR  JUST  CLOSED  $ 

YOUR  BRANCHr;S  OR  ALLIED  CONCERNS  BORROW  LOCALLY? WHERE? 

YOU  BORUO\v'  CONTINUOUSLY  IN  OPEN  MARKET? FOR  MERCHANDISE? 

HERWISE? AMOUNT  OF  YOUR  NOTES  PAYABLE  SECURED  BY  COLLATERAL  $ 

SCRIBE  THE  COLLATERAT 


NTS  PAYABLE-WHAT  ARE  YOUR  AVERAGE  TERMS  OF  PURCH.\SE? 

I  YOU  DISCOUNT? ANTICIPATE? NAME  A  FEW  CONCERNS  FROM  WHOM  YOO 

RCHASE  IN  LARGE  QUANTITIES: 


Size  of  original  7j4  x  lOj^ 

97 


DEPOSITS  OP  MONEY  WITH  TH18  CORPORATION  BY  OFFICERS  OR  OTHERS-ON  .TIME  OR  DEMAND? 

FROM  WHOMr RATE  PER  CENT  PAIDT. 


BONDED  DEBT-WHEN  DUET WHAT  RATET ON  WHAT  ASSETS  A  LIENT 

AMT.  AUTHORIZED  f AMT.  ISSUED  i WHO  IS  TRUSTEE? 

PROVISION  FOR  RETIREMENT 

CHATTEL  MORTGAGES-TO  WHOM? DATE  OF  MORTGAQEr TERMS  OF  PAYMENTT. 

ON  WHAT  ASSETS  A  LIENT DOES  IT  REPRESENT  A  PART  OF  PURCHASE  PRICE? 

DOES  IT  REPRESENT  BORROWED  MONEY? 

LEASES— ARE  YOU  LEASING  ANY  PBOPERTYT WHAT  ARE  THE  TERMS  0?  T] 


OTHER  CURRENT  UABILITIES-imoza: 


MISCELLANEOUS 

CAPITAL— HOW  PAID  IN?-CASH  S OTHER  PROPERTY  AND  HOW  VALUED?. 


ARE  PREFERRED  STOCK  DIVIDENDS  CUMULATIVE? DIVIDEND  RATE? PRESENT  UNPAID  ACCUMULATION  %. 

ORGANIZED  UNDER  LAWS  OF  WHAT  STATE? ARE  YOUR  BRANCHES  INCORPORATED  SEPARATELY? 

IN  WHAT  STOCK  IS  VOTING  POWER  VESTED? HOW? 

WSURANCE-ON  MERCHANDISE  $ '.  CREDIT  i LIABILITY  i LIFE  J.. 

ISJDORSERS-WHAT  IS  THE  NET  WORTH  OF  EACH  ENDORSER  OUTSIDE  OP  INTEREST  IN  THIS  BUSINESS? 


OFFICERS  AND  DIRECTORS  (Ni^m  m  Full) 


PRESIDENT 

VICE  PRESIDENT. 

SECRETARY 

TREASURER. 


NUMBBB 

Sbabib 

HiLB 


Pro.     Cou 


TIME  OF  YEAR  RECEIVABLES  GENERALLY  MAXIMUM MINIMUM..... ^ 

TIME  OF  YEAR  MERCHANDISE  GENERALLY  MAXIMUM MINIMUM 

STATE  GROSS  SALES  FOR  THE  PAST  THREE  YEARS-19 t 19 S - 19 t 

WHERE  IS  YOUR  PRINCIPAL  SALES  TERRITORY? .-. 

IF  YOUR  BOOKS  HAVE  BEEN  AUDITED  BY  A  CERTIFIED  PUfeLIC  ACCOUNTANT.  GIVE  NAME  OP  ACCOUNTANT  AND  DATE  OF  AUDIT. 


ARE  THERE  ANY  JUDGMENTS  UNSATISFIED,  OR  SUITS  PENDING  AGAINST  YOUR  CORPORATION,  AND  FOR  WHAT  AMOUNT?. 


GIVE  DATE  YOU  REGULARLY  TAKE  INVENTORY  AND  CLOSE  YOUR  BOOKS.. 


Tha  foregoing  statements  and  details  pertaining  thereto,  both  printed   and  written,  have  been  carefully  read  by  the  undersigned,  and  I  hereby  soU 
declare  and  certify  that  same  Is  a  full  and  correct  exhibit  of  our  financial  condition. 


CORPORATE  NAME. 
DATE  SIGNED 19.'. 


(orricia  s  tttlb  must  >a  oivkn) 


NOTE:      If  you  hav«  any  difficulty  In  filling  In  the  foregoing  statements  and  questlonary,  the  Credit  Department  of  this  bank  Is  prepared  \.o  exten 
Murteous  and  intelligent  service:   In  fact,  we  solicit  your  oo-operatlon  and  acquaintance  with  our  eredJt  methods. 


Size  of  original  7%  x  10^ 

98 


FiiiNCiAL  STATEMENT        CLEVELAND  CLEARING  HOUSE  ASSOCIATION  FORM 

INDIVIDUAL 

\IIESS 

T  THE  CLEVELAND  NATIONAL  BANK,  Cieveland,  Ohio. 

Fcn  t::::  I'URKtefi  of  procuring  credit  from  time  to  time  with  yoo.  for  my  negotiablk  Paper  or  otberwise.  i  furnish  the  fol- 

r  vn  A9  ^  TP^  » vn  mppprr  ktatf.MRKT  Ol?  MY  FINANCIAL  CONDITION  ON'                               ,                                 19             .  AND  HEREBY  AGREE  TO 
FY  YOU  IMMEDIATELY  IN  WRITING,  OF  ANY  MATERIALLY  UNFAVORABLE  CHANGE  IN  MY  FINANCIAL  CONDITION.    IN  THE  ABSENCE  OF  PUCH  NOTICE 
NEW  AN D  I- ULL  WRITTEN  STATEMENT.  THIS  IS  TO  BE  CONSIDERED  AS  A  CONTINUING  STATEMENT.  AND  THAT  MY  PECUNURY  RESPONSIBILITY  HAS 
FALLEN  BELOW  THE  CONDITION  HEREIN  SET  FORTH.                  ^                           ,                                                                                              „»....„, 
flu  THE  Absf.ncs  or  Atrt  Amount.  Insebt  CiraBRS  in  5T.iTniB!rr  FoRiis.    ANSwra  All  Qomtioot  ok  FoLLowwa  Paois.     U«»  tm  WoBoa  "Ym,    "No    ob  "Nojei 
Tatr  Will  AsawBa  thb  Qcsstions  CoaaEOTLT.    Sias  at  Bottoh  or  Second  Paob.) 

ASSETS 

DOLLARS 

CENTS 

UABILITIES 

DOLLARS 

CENTS 

Sn  ON  HAND  AND  IN  BANK- 

NOTES  OWED  BY  MB-WITHOUT  SECURITY 

COUNTS  DUE  ME-GOOD 

NOTES  OWED  BY  ME-WITH  SECURITY  OTHER 
THAN  REAL  ESTATE 

(SECURED  LOANS  DUE  ME-GOOD 

NOTES  OR  MORTGAGES  OWED  BY  ME-WITH 
REAL  ESTATE  AS  SECURITY 

CURED  LOANS  DUE  ME 

NOTES  OWED  BY  ME-WITH  CHATTEL 
MORTGAGE  AS  SECURITY 

JRTOAGE  LOANS  DUE  ME 

ACCOUNTS  OWED  BY  ME 

RM  ^ODUCTS  ON  HAND 

ANY  OTHER  INDEBTEDNESS-ITEMIZE 

V-E  STOCK  ON  HA'ND 

ND 

1LDINGS 

RM  IMPLEMENTS  AND  MACHINERY 

;Y  OTHER  PROPERTY  OR  INVESTMENTS- 

TOTAL  LIABILITIES 

NET  WORTH 

TOTAL 

CONTINGENT  LIABIUTY  OF  ANY  KIND 


I  NOTES  OF  OTHERS  ENDORSED  BY  ME 

' 

oi;arantor  for  accounts  and  notes  of  others 

;  NOTES  exchanged  with  others 

:  BONDSMAN  OR  SURETY  FOR  OTHERS 

»li  LEASES 

^HER  THAN  ABOVE  SPECIFIED 

TOTAL 



__^ 

DETAILS  RELATIVE  TO  ASSETS  AND  UABIUTIES 


-Al  AND  BUILOINGS:- 

DlSCRIPTlOM  AMD  LoCATIOtI 

TnuiuiWiioraNAia 

Apfbaisbd  Valox 

MnBTOAOU 

lUBTOAllCl 

RsnALS  RcCBtVKD  DoUlM 

LawFocalYbak 

$ 

$ 

s 

$ 

$ 

»Y  WHOM  APPRAISEOr 



,«    VHENt „„..........~...... 

:AXS8  PAUO  TO  WBAT  DATBt 

< 

5ize  of  orig 

inal7j4xl( 

99 

)yz 

ANT  OTHER  PSRSON  INTBRJESTED  IN  YOUR  B0SINS8B  JOTBXB  AS  6PBCIAL  OR  UMITED  PARTN£31T. 


IBS  TW  A-  PABTIOR  IN  ANT  FIRMT. 


ARK  THSRB  ANY  JUDGMENTS  UNSATISFIED.  OR  SUITS  PENDINO  AQAINST  YOU.  AND  FOR  WHAT  AMOUNT?  . 


18  TOUR  LIFE  INSUREDT AMOUNT? 

WHO  13  THE  BENEFICIARY? 

HAVE  YOU  ANY  LEASEHOLDS  NOT  MENTIONED  IN  YOUR  ASSETS? 

QIVB  DETAILS 

WHAT  IN  YOUR  OPINION  13  THE  NET  WORTH  OF  EACH  ENDORSER  ON  YOUR  NOTES?. 


ARE  ANT  OP  TOUR  ASSETS.  OTHER  THAN  REAL  ESTATE,  PLEDGED  OR  HYPOraECATED  IN  ANY  WAY?. 


NOTES  OWED  BY  ME:- 

Amoojtt 

iNTEaSST  RlTB 

To  Whom  Givm 

Dat« 

Wbbn  Dub. 

X 

ACCOUNTS  OWED  BY  ME:- 

To  Whom 

kuoxnn 

Wbxn  Dut 

Fob  Wait 

% 

UVE  STOCK  ON  HAND 

FARM  PRODUCTS  ON  HAND 

Nmon  or  Ebm> 

VAwm 

DtacxmtoN 

DHOvmoN 

QniSTITT 

Valu. 

f 

= 

1  HEREBY  SOLEMNLY  DECLARB  AND  CERTIFY  THIS  TO  BE  A  TRUE  AND  CORRECT  STATEMENT  OF  MY  FINANCIAL  CONDITION  AT  TUB  CUj 

09 ByMN^^^f  ■!       ■  ■■  _ J ■■_.i....«........p.....^^«...r 


(SKUf  BKB8>... 


,M^ 


.«Mb««MW*dlhfwiohlb*aM4widClMriiitH«iiMAMMMM,BU)CliM*frafCamMfMi   Ptkmamtmm* 

Siza  of  original  7^  x  10 J^ 
100. 


The  Fletcher  American  National  Bank,  Indianapolis,  Ind 

OFFICE  OF 
-    n»  of  Bank  or  Ftrm\ 

••* 

'\ 

atlnn) 

Below  pleaae  find  statement  of  financial  condition  as  shown  bt?  our  books  on                                                           i 

91 

Iblllty 

'*  famished  in  confidence  for  sour  use  alone,  and  as  a  guide  should  the  question  of  our  standing  and  respons 
mt  itself  in  the  course  of  our  affairs  with  your  bank. 

Respectfully. 

(Stan  omctallBi 

ASSETS                                                 1 

LIABILITIES 

w  and  Discounts    

Capital 

.  Bonds 

Surplus  .     _ 

Individual  Deposits 

^    f  nn  HnnH 

from  Banki^ 

om  Fletcher  American 
National  Bank,  Indianapolis 

'om..  .    ..      ....    ._ 

—  mm 

Demand  Certificates 

Time  Certificates 

Bills  Payable  (see  below) 

Other  TAnhiHtie/t 

~~  rom 

mm 
—.  t  K.ttnttt 

. 

- 

_    er  Assets _. 

- 

Total    

Total    

■4><ff>/o  nf  Rill.-,  PnpnMi>- 

-~ 

inmll 

tf  helm 

nf  in 

dlaidunl 

mam/u>rM 

n,  in  addition  to  above: 


marks: 


Size  of  original  7^4  x  10 

101 


standard  Form 

American  Bankers'  Association 


The  Fletcher  American  National  Bank  of  Indianapolis : 

undersigned,  for  the  purpose  of  procuring  credit  from  time  to  time  from  you  for  the  negotiable  paper  of  the  undersigned  or  otherwise,  furnish  yam 
with  the  foUomng  statement,  which  fully  and  truly  sets  forth  the  financial  condition  of  the  undersigned  on  the 


dayt^- 


; JL9 _,  which  statement  you  can  consider  as  continuing  to  be  full  and  accurate  unless  notice  of  change  is 

given  you.  The  undersigned  agree  to  notify  you  promptly  of  any  change  that  materially  reduces  the  pecuniary  responsibility  of  the  undersigned 
onsideration  of  the  granting  of  such  credit,  the  undersigned  agree  that  if  the  undersigned  at  any  time  fail  or  become  insolvent,  or  commit  an  Act  of 
Bankruptcy,  or  if  any  of  the  representations  made  below  prove  to  be  untrue,  or  if  the  undersigned  fail  to  notify  you  of  any  material  change  as  before 
agreed;  then  and  in  either  such  case  all  obligations  of  the  undersigned  held  by  you  shall  immediately  become  due  and  payable  without  demand  or 
notice,  and  the  same  may  be  charged  against  the  balance  of  any  deposit  account  of  the  undersigned  with  you,  the  undersigned  hereby  giving  a  con- 
tinuing lien  upon  such  balance  of  deposit  account  from  time  to  time  existing  to  secure  all  obligations  of  the  undersigned  held  by  you. 


ASSETS 


LIABILITIES 


on   hand^ 


f  Receivable,  good,  owing  by  Customers 

dunts  Receivable,  good,  owingby  Customers- 

xkandise,  (How  Vcdued ^) 

/  Estate ■ 

'Jtinery  and  Fixtures 


JBank. 


Total 


Bills  Payable  for  Merchandise. 

Bills  Payable  to  Bank 

Open  Accounts 


Mortgages  or  Liens  on  Real  Estate. 


Il 


Total  Liabilities 
Net  Worth 


Total 


Accommodation  Endorsements. 


iHngent  Liability.     -^ 

(   Endorsed  Bills  Receivable  Outstandings 


^fy  any  ef  above  assets  or  liabilities  pledged  as,  or  secured  by  collateral,  and  state  collateral. 


Tolume  of  business  for  last  fiscal  year 


tfit,  ftam1ngf<. 


(Stgned), 


Size  of  original  7j/$  x  9^ 

103 


J)  The  Fletcher  American  National  Bank  of  Indianapolis: 


ninaaa 

the  express  purpose  of  procuring  credit  from  time  to  time  from  vou,  the  undersigned  herebu  make  to  vou  the  following  statement  of  the  condition  of  the  under- 

signed  on  the dap  of J91 .-  and  the  undersigned  herebg  agree  and  guarantee  that  said  statement  is  in  all 

respects  true  and  correct;  and  vou  may  consider  said  statement  as  to  the  pecuniary  responsibilUg  of  the  undersigned  as  continuing  to  be  true  and  correct  until 
written  notice  of  a  change  is  given  to  you  by  Che  undersigned. 

undersigned  agree  to  notify  you  forthwith,  in  writing,  in  t/ie  event  of  any  change  that  reduces  the  pecuniary  responsibility  of  the  undersigned  below  that  herein 
set  forth.    If  at  any  time  the  undersigned  fail  to  notify  you,  in  writing,  of  any  such  change,  or  if  at  any  time  the  undersigned,  or  any  of  them,  stop  payment, 
or  become  insolvent,  or  fail,  or  commit  an  act  of  bankruptcy,  or  if  any  one  of  the  .statements  herein  contained  is  found  by  you  to  be  untrue  or  Incorrect,  or  if 
any  change  in  the  financial  respcfnsibility  of  the  undersigned  occurs  by  reason  of  which,  in  your  Judgment  (and  of  this  you  shall  be  the  sole  Judge),  the  under- 
signed are  not  entitled  to  a  continuance  of  the  credit  extended  by  reason  of  this  statement,  then,  and  in  any  of  said  events,  any  and  all  debts,  liabilities  and 
obligations  of  every  kind,  whether  direct  or  contingent,  from  the  undersigned  to  you,  shall  at  your  election  forthwith  become  due  and  payable,  without  demand  or 
notice,  and  you  are  hereby  authorized  to  apply  on  account  of  any  or  all  of  such  debts,  liabilities  and  obligations  of  the  undersigned,  w/ielher  direct  or  contingent, 
all  property,  real  and  personal,  of  every  kind  and  description  of  the  undersigned,  and  of  each  and  every  of  them,  including  balances,  credits,  collections,  moneos. 
drafts,  checks,  notes,  bills  and  accounts,  whether  in  your  possession  or  in  transit  to  or  from  you,  and  you  are  hereby  expressly  given  a  continuing  lien  upon  all  of 
said  property  from  time  to  time  to  secure  any  and  all  of  the  debts,  liabilities  and  obligations  of  every  kind,  whether  direct  or  contingent,  from  the  undersigned  to  you. 

Fill  all  blanks,  writing  "NO"  or  "NONE"  where  necessary  to  complete  information. 

ASSETS 

LIABILITIES 

Bills  Papable  (Notes)  for  Merchandise 

Bills  Payable  for  borrowed  money— to  own  banks 

Bills  Payable  for  borrowed  money— for  paper  sold 



.     i . 

sh  In  Bank                                       -                        

Us  Receivable,  all  good,  owing  from  customers 

^counts  Receivable,  all  good,  owing  fl'om  customers 
•counts  Receivable,  owing  from  Partners  (see  page  3) 
erchandise.  finished,  at  actual  present  cash  value 
erchandise.  unfinished,  at  actual  present  cash  value 
aw  Material 

; 

Open  Accounts  past  due 

. 

Owing  to  Foreign  Banks  and  Bankers... 

Deposits  and  other  Trust  Funds....: ; 

' 

tocks  Bonds  and  Investments  (sea  page  3) 

Bonds (Dus....- ...J 

I 

tal  Estate  (see  page  3) 

* 
1 



ceounts  and  bills  receivable  owing  fl-om  officers 

^  t:  \ 

OTHE 
BILI 

' 

iij 

3( 

Total  I.tahilltlM 

NET  WORTH ; 

Total 

Total 

Dr.           PROFIT  AND  LOSS  ACCOUNT,  FISCAL    YEAR  ENDING -..- -    —.191 Cr. 

GROSS  PROFITS 

Bad  debts  charged  off                                .              $ 

From  Merchandise  .             9 

Withdrawals  by  Partners X 

Net  Profits S. 

From  Investments S- 

7-0/0/ S 



Total X 

'Signature).. 


Date  and  Place  Signed...... 

NOTE:    Please  fUmlsh  tn  detail  the  Information 


/*/ 

on  foUowino  pages. 

C«.  IS2 


(Obv) 


Size  of  original  7]^  x  10J4 

105 


Ail  of  the  following  information  and  data  shall  be  considered  and  taken  as  part  of  the  foregoing  signed  statement: 

Aoerage  amount  of  stock  carried _-__ S 

Total  salea  for  last  fiscal  vear $ 


Are  oil  bad  and  doubtful  assets  excluded  from  abooe  statement? 

Specif])  an\)  of  pour  assets  pledged  as  securitg  for  loans,  advances,  or  other  liabilities  . 


What  amount  of  Bills  and  Accounts  Receivable  Is  past  due,  or  extended? S- 

Spectfo  ang  of  gour  liabilities  secured  bg  collateral,  and  state  collateral .' „ : 


I  On  Buildings  and  Plant „ S.. 

Insurance  <   On  Merchandise  S.. 

'   On  Accounts  Receivable  - S- 


Give  nqmes  of  all  banks  where  accounts  are  kept 


Names  of  Bankers  or  Brokers  handling  our  notes 


Upon  Redlscounted  Bills  Receivable ~.S.. 

Upon  accommodation  paper  or  endorsements S. 

Upon  notes  exchanged  with  others X. 

For  Guarantees _ $.. 

For  Bonds  _ S.. 

Regular  times  of  taking  Inventorg  - 


General  Partners 


Date  of  Partnership  agreement. 
Names  <^  Special  Partners 


When  does  It  expire?.... 


Amount  of  special  capital,  bg  whom  contributed,  and  until  what  date. — 


STATEMENT  OF  REAL  ESTATE  OWNED  BY  FIRM 
Oloe  loeatlon  and  present  market  value  o/  each  piece,  and  amount  of  encumbrance.  If  ang.    If  leasehold,  state  if  have  privilege  of  purchase: 


Size  of  original  7]^  x  10^ 


106 


S'CKS.  BONDS  AND  INVESTMENTS  OF  FIRM.     Gloe  deacrtptton  and  cash  market  value 


REAL  ESTATE  OWNED  BY  INDIVIDUAL  PARTNERS 

included  in  statement  of  firm  real  estate;  glue  location.  In  whose  name  held,  cash  market  value  of  each  piece  and  encumbrance.  U  anp.    If  leasehold,  state  It 
have  privilege  purchase: 


STOCKS.  BONDS  AND  OTHER  INVESTMENTS  OF  INDIVIDUAL  PARTNERS 
i  description.  In  whose  name  held  and  cash  market  value; 


In  Bills  Receivable  are  the  following  amounts  owing  t^om  Indlotduala  (Officers,  Directors,  Stockholders,  or  others).  Firms  or  Corporations,  aeUng  in  tht 
rapacity  of  agents  for  this  corporation. 


X. 

X.. 

I.. 


founts  Receivable  Include  the  following  amounts  owing  ftom  Individuals  (Officers,  Directors,  Stockholders,  or  others).  Firms  or  Corporations,  acting  in  the 
capacltv  of  agents  for  this  corporation. 

Owing  from S 


Please  explain  connection  of  above  agents  with  this  corporation,  and  state  in  what  manner  Bills  and  Accounts  Receivable  were  contracted  bg  thtiK 


it»  and  Place  Signed. ,  (Signature)- 

Bg. 


Size  of  original  7^  x  10^4 


107 


nThe  Fletcher  American  National  Bank  of  Indianapolis: 

Ifte  (corporate  atgle  under  charter) „ v. ^..* — ... 


(Corporatton) 


Htness.. 


.Location... 


othe  expnss  purpose  of  procuring  credit  from  time  to  time  ftom  ifou,  the  undersigned  herebp  nuxkes  to  poo  the 

following  statement  of  the  condition  of  the  undersigned  on  the dap  of........ ._. ..-/P/ ; 

and  the  undersigned  herebp  agrees  and  guarantees  that  said  statement  is  in  all  respects  true  and  correct;  a/fpf 
Ifou  map  consider  said  statement  as  to  the  pecuniarp  responsibilitp  of  the  undersigned,  as  continuing  to  be  true 
and  correct  until  written  notice  of  a  change  is  given  to  pou  bp  the  undersigned 

Fill  all  blanks,  writing  "SO"  or  "NONE"  where  necessary  to  complete  iafomiiation 

'  '  .  H 


oa'/i  hand  and  In  bank 


ilL'eceloaN:ttttgood,oalniif^wneuatom»rs 

m^ecetoable,  owing  flvm  Dlraetors  or  Stock/ioidera 


xnts  Recttvable,  all  good,  owing /hom  customers}/^.. 

«e  nis  Racatvabla.  owing  fiom  Dtreetort  or., 
Jtoc/cfioldtrt  (see  pagaS) — -..- 


n  andlae,  finished,  at  actaaiprtatnt  cash  value. 

'uandlae,  unfinished,  at  aetuid  present  cash  value 

atHatertai 

Total  Quick  AsatU.! - 

tot.  Bonds  and  Inoestmenta  (see  fiage  3) 

Aanerv  and  Fixtures  


Ut'istate  (see  page  3) 

ioints  and  bllln  receivable  owing  ftwn  officers 
and  emplopees. 


LIABIUTIES 


Bills  Papable  (Notts)  for  Merchandtoe. •- 

Bills  Pagable  for  borrowed  monep  -io'own  banks 

Bills  Pagable  for  borrowed  monep-for  paper  sold 

Bills  Papable  to  Directors  or  Stockholdera. 

Open  Accounts  not  due ^ .,« 

Open  Accounts  past  dttt... 

Accounts  owing  Directors  or  StodduMars _ 

Labor,  Salaries,  etc. _ „. 

Deposits  and  other  Trust  Funds 

Mortgages  and  Liens  on  P.  B.  (Du« _ 

Bond* — - — (Due 

Chattel  Mortgoffe*....: _ u «...«- 


i 


Total  Uablliaea 

Capital  Stock  Issued. — 

Surplus.  Including  undtolded  profits . 


Total 


Dr. 


PROFIT  AND  LOSS  ACCOUNT.  FISCAL  YEAR  ENDING 191- 


Cfr- 


Aial  Expense  of  coHduetlng4nislnes3    .  9— 

0.  dtuts  charged  off S— 

Vi  s^d  off"  for  depreciation  S— 

OJcruisPatd X.. 

i\it  Profits S^ 

Total J... 


GROSS  PROFITS 

From  Merchandise X./. 

From  Interest  and  Discounts        ....       t— 

From  Inoestments X-.< 

From  other  sources S;^ 

Total S- 


ts  and  Accounts  Receivable  discounted  or  sold  S- - - |  Net  Sales  during  pear 

ommodoUon  Endorsements  t. ;.  «t  Insurance  carrledon  Merchandise 

»  fontinaent  Liabilities  .       •     „•    ,    •  ^ , ,, , ^\  Insurance  carried  on  Bulldln<^s  and  Eouip 

(Signature) _ _ .»..«..- — . • 

'*  and  Place  Signed. „7W Bp...... >. -.. —.-»£«. 

NOTE:    Please  fiimlah  in  detail  the  infbrmtttlon  ctHled  for  on  following  pages. 


Size  of  original  7^  x  10^4 
109 


Alt  of  the  following  htformaHonwid  data  shfttf  be  considered  and  taken  as  part  of  the  foregoing  signed  statement; 


Awttoe  amount  of  lock  carried 

An  all  bad  and  doubtful  assets  exelitded  from  abooe  stattmant?.„< 

BUla  and  Accounts  Reeatoable  Hated  on  Statement,  en 

which  pou  expect  to  realise  within  90  dope.      S. 


Ml  UablllUes  (.exelaaloe  of  Contingend  due  and  papable 
within  90  daps  S 


What  amount  of  Bills  or  Accounts  Receivable  has  Seen  on  the  books  more  than  six  months? ,....„ ^ - ^.^ /.. 

What  amount  of  Bills  or  Accounts  Jfeceipable  is  past  due.  extended  or  renewed?. _ f.. 

EsUmated  realizable  oalaa  of  slow  Bias  Keceioabte  and  Accounts  Reeeioable.^ ~.., - S. 

If  anp  Bills  or  Accounts  PapaNs  art  secured  bp  eoUateral,  endorsement,  guarantee  or  bond,  gloe  amountsand  howaecured. 


What  was  Maximum  amount  short-term  loans  during  past  pear,  arui  date? f... 

What  was  Minimum  amount  short-term  loans  during  past  pear,  and  date? , «.^.., 

Anticipated  Maximum  amount  short-term  loans  during  the  coming  pear? „.,..._^^ „„.»» ...$■■ 

Is  statement  based'on  actual  Inoentorp? , ...^....u «^  mm - - 

How  is  valuation  arrived  at. 

•<o)    On  Merchandise,  finished? - „...„.« , , „ — . 

CW    On  Merchandise,  unfinished? „ „..« ~.,..„.«~ , „ ^..^.^-_.r. ^.^..^^., — „. — ^ 

(c>    On  Raw  Material? — ^.., -. >». -^ ^...- ^-,m,„.,~.,— « .^^ 

If  coat  price  exceeds  market  pries,  what,  provision  Is  made  for  shrinkage? -.,.i^„„....„ _..  „«>..,.,.^ , 


Has  anp  merchandise  listed  in  t/Ua  statement  been  on  pour  handa  ooer  one  pear?   If  ae,  amount 
/n  what  month  is  Inoentorp  highest? ., «...^...— «..«^.— In 


...->..-^..-.. 


whet  month  is  inoentorp  lowest?.. 


NAME  IN  FVU, 


Number 
Shares  ffeld 


Prealdent 

yiee-Preaident.. 

Treasurer  


ADDRESS 


NAME  IN  FULL 


DIRECTORS 

Number 
Shares  Held 


ADDRESS 


In  what  state  Incorporated — 

Paid  in.  S 

OTHER  PROPERTY..^ 


Date  of  tncontoration... 

Oeld  as  Treaearp  Stock,  f 


CepUa  Stock  aatkorieei.  X- 
Hour  paid  In:   CASH.S- 


Size  of  original  7]/i  x  10^ 


no 


%  STATBMENT  OP  USAL  BSTATE 

UoceiUon  and  pnami  market  odtu  of  tach  pltet,  and  amount  of  theumbrance.  if  anp.    If  leaathold.  taU  if  hava  prtoUeo*  of  purchase: 


CKS.  BONDS  AND  INVESTMENTS,   Ctoa  dtaertptton  andeaah  market  oalue. 


he  Items  Bills  and  Accounts  Recaioable  from  Directors  and  Stockholders  represent  actual  sale  of  goods? I 

part  represents  cash  adoanced?. -r.r.- .••—•. _......— ..— ..~ S « 

he  items  Bills  and  Accounts  Papable  to  Dlreetor^  and  Stockholders  represent  actual  purchase  of  goods?-, .^ . _ 

at  part  represent  cash  adoanced? — — « — ..^ „ _ ;.„ X 

«  pou  anp  AffiUated  or  Allied  Co.  's.  and  do  thep  borrow  indlplduallp,  or  are  thep  financed  bp  the  Parent  Corporation,  or  both? '... 


and  Accounts  Receivable  Include  the  followlnp  amounts  owing  from  Individuals.  {Officers.  Directors,  Stockholders,  or  others).  Firms  o,  Corporations  acting  In  t 
capacltp  of  agents  for  this  corporation. 


Owing  firom  ....—- — —■- ~>.~— •••»•>.>•- — • ....-.■>.•. — -^    .  » i.......  ■. — ^..Mw~.-ww.y„ 


Please  explain  connection  of  above  agents  with  this  corporation,  and  state  In  what  manner  Bills  and  Accounts  Receivable  loere  contracted  bf  them: 


e  names  of  all  banks  where  accounts  are  kept,  and  lines  of  Credit  with  each. 


mest>f  Bankers  or  Brokers  handling  our  notes - - 

/  herebv  certl/b  that,  to  the  best  of  mp  knowtedge  and  bdtef.  the  figures  and  informaUon  given  are.  In  eperp  respect,  true,  and  in  accordance  with  the  facta, 
te  and  Place  Signed ^...^,..-....^....~... — ,>»„.,,,......-w..^  (.Signature) . — — ~— — — ~.— 


Size  of  original  7}4  x  I0j4 

111 


c  National  |tank  of  f  omiq^rce  of  detroh 

i 

Pnthftf      -      i.M.:,:.;;....;;^™......,.. 

CORPORATlOft 

Rr^^^k.. 

• - 

Thit  form  of  Statement  approved  by  the  Federal  Reserve  Bank  of  Chicane. 

ASSETS 

LIABILITIES 

.  hand  and  in  bank 1 

•     Note*  Payable,  for  Merchandise 



■ 

Receivable,  from  Customer*,  good 

t«  Receivable,   from   Cu»tomer*.  good-  ■ 
1  Acc'tt  Rec'able  from  Officers.  Director!,  etc. 
:  Accu  Recable.  from  Affiled  or  Allied  Cos 

U  and   Nolei  Receivable,  doubtful 

ndise.  finiihed -- 



•     Note*  Payable,  to  Bank  ar  Banks 

.     Note.  Payable,  for   Paper  Sold 

j  Note.  Payable."  to   Other*...- 

]i   NotcandlAec't.  Payable,  to  Officer..  Duectbt..etc 

.j!    Note*  and  Acc-t.Pa7able.  to  Affiliated  or  AlliedCo'i    

- 



... 

ndi.e.    unfinished 

laterial 

ndise    on    Consignment 

en  Is;    Bonds  and  Stock*.  "Listed" 

=  page   2) 

ents;    Bonds  and  Stock*.  "Unlisted" 

'  Pag*  2) 

ents:    Bonds.  Slock*,  etc..  ACfilialed  or 
ed  CoV 

.... 

.... 

.     Open  Account*,  not   due-...- 

Open  Account*,  past  due -.— t 



.... 

.... 
.... 

.... 

.... 

.... 

1    Ubor.  Salaries,  etc .,...., _ 

i    Deposit,  of  Money  with  U». 



.... 

.... 

.                     When  due 

.     Mortgage  or  Lien  on  Plimt  or  Equipment 

'                     When  due 





... 

.... 

.... 

..._... 

1 

1    Chattel  Mortgage  or  other  Lien*. 

i    Bonded  Debt,  due - -.... 

Insurance,  etc - 

Deferred  Charges ....... 

Vill  and  Palcnl* « 

Assets  and  of  what  composed 

.j    Interest.  Taxes,  etc..  due  and  aecmed 

'    Dividends  Payable 

.... 

.... 

... 

!    ^ 

i 

...., 

1 

i 



.... 

.... 

... 

Total    Liabilitie* 

!    Reserve  for  Bad   Debto 

.... 

... 



Capital  Stock.   Preferred 

Capital  Slock    Common 



;    Surplus,   including   Undivided   Profit* - 

.... 

TOTAL 

1                                             TOTAL 

*Unlesa  otherwiM  noted,  Merchandise  Inventory  and  Raw  Material  have  been  figured  at  coat. 

PROFIT  AND  LOSS  ACCOUNT.  FISCAL  YEAR  ENDING.-- - - - 19 Cr. 

II 

5 

A. _.    

GROSS  PROFIT 

d  off  for  depreciation $ 

From  Mercjiandite     ..- 

nds    Paid    $ 

over  Dividends 4 

From   Inv««fm«n(«                                        *. .               ...... A. -^         ..^ 

.4. 

TOTAL 

$. 

TOTAL. $.- ~ " 

or  Account*  Receivable  di*counled  or  *old                  $ 

Net  Sale*  durinir  vear                              ....                  4.       ..—.-... 

modation   Endorsement*    •• ^ 

Inniranre  rarried  on   Merchandise                                                   A ».*— 

Contingent  Liabilitiea. ^ 

4. 

Any  other  Insurance— -..'...fM.-^^ 

rial  7}i  X  1054 

a                   

s 

iz 

e 

of 

0 

rigi 

Specify  aay  of  llie  Avf€  Miel*  or  liabilities  ple<)ge<I  m  or  secured  by  colialeral  and  stale  collaleraK^ 


Doc*  your  Corporalioa,  or  do  your  Officer*,  ever  exchange  notes,  draft*  or  checks  with  any  person,  firm  or  corporation? — ~...... 

Doe*  your  G>rporaKon,  or  do  your  Officers,  ever  endorse  paper  for  the  accofflmcdalion  of  any  person,  firm  ot  corporation? - 

Do  endorser*  or  guarantors  of  your  paper  endorse  or  guarantee  any  other  paper  or  account? Present  amount,  $ 

Are  there  any  suits  pending  against  your  Corporation,  and,  if  so,  for  what  amount?    , ■$• 

Does  die  item  Notes  and  Account*  Receivable  from  Affiliated  or  Allied  Companies  represent  actual  sale  of  goods? ..—• 

What  part  represents  cash  advanced? — - ~ ~ — •« ■$■ 

Does  the  item  Notes  and  Accounts  Payable  to  Affiliated  or  Allied  Companies  r^re*enl  actual  purcha*e  of  good*? - 

What  part  represents  cash  advanced?- - - -.. ~~.— . -~ $.... — . 


Do  Affiliated  or  Allied  Companies  borrow  individually,  or  are  they  financed  by  the  Parent  Corpwation,  or  both?. 

What  was  Maximum  amount  short-term  loans  during  past  year,  and  dale? • ».»__..» 

What  was  Minimum  amount  short-term  loans  during  past  year,  and  dale?—- •• — , — - 

Anticipated  Maximum  amount  short-term  loans  durmg  the  coming  year? ~ .>„_^^«......^..........~ 

Slocks,  Bond*  and  Inve*hnenl* — give  description  and  cash  market  value: 


.4... 


4.- 

4. 

$ 

4 

-$ 

4....-™ 


What  provi*ioo*  have  been  made  for  the  retirement  of  bonded  or  mortgage  debt?    -~ - ■• — »-— — - 

Do  your  plan*  for  your  fiical  year  contemplate  anything  in  the  way  of  building  <^eratiott*,  plant  exteiuion  or  investment  in  other  fixed  asseU?     If 

*late  amount  to  be  *o  inve*led? ~...™ — . ...^_«„.~^..„ „ .-- .,.„.., — „..4. ~~w... 

What  is  your  relationship  with  Affiliated  or  i^Ilied  Companies?     Please  furnish  full  particulars . ■,....«■»., .^^ — , 


PrcMdeai 

NAME  IN  FULL 

OFFICERS 
Nonber   Share,  held 

ADDRESS 

Vicm.Pf,M^ 

S««Ury    -               - 

■ 

• 

NAME  IN  FtJLL 


,  $- 


CAPITAL: 

Audiorized.  $ 

Paid  in  cash.  $ -  Stock  Dividends,  $... 

Held  by  die  Company  as  Trea*ury  Stock.  $ .- 


DIRECTORS 
Nudber  Share*  held 


ADDRESS 


Preferred.    $ 


Sub*cribed,   $... 


Patent*.   $...._ 

~-...  Since*..-.-— i. 


Par    Value,    $... 

OAei  A**els.  $~. 


Incorporated  in  what  State  and  under  what  General  Law  or  Special  Acl> 

Dale  of  Charier ~^... 

To  wdwl  «xlcat  are  Slo«kboldcra  liaUt  b^ood  amount  of  Stock  subscribed.. 


.Commenced   Businc**~ 


Size  of  original  7}i  x  10^ 


114 


M.  Estate  Location  (Give  legal  de>criprionr  and  nunibcr  and  name  of  •trcct) : 


vture: -Cost  taSCompmy, „ ~  Auened  Value,  $ 

ihe  lille  in  name  of  corporation? If  not  in  who«:  name?— ■ 

as  any  porlion  acquired  through  bad  deki$? ■•..- How  much? '. - ; 

e  dividend  lasl  five  years,  $ When  was  last  dividend  paid •• Rate 

imount  of  Accounts  or  Notes  receivable,  in  this  j      !«»»  iHa"  30  davs,  $ .between  30  and  60  days,  $.. 

Statement,  not  charged  off  is  past  due?                 )                 .i         ^in     .          *  .i         i  .i       * 

'  "^  .  t.     more   Inan   60   days,    $ more   than  o   months,   5.. 

auch  of  this  it  collectable.  $ What  amount  of  merchandise  is  mo.-c  than  one  year  old,  $ 

o  you  treat  doubtful  accounts? 

/  on  machinery,  $ ~ : ....on  buildings,  $• — 

1*  charged  off  a,  depreciation  for  year     )  ^^  j^^^j,^^^  ^j  j^,^^^  ^ _ ^  p,,^,^  ^ ^ _ 

dmg  with  date  of  this  slalemeni:  i 

\  on .-; ; $ 


s  the  dale  of  patent  rights  carried  as  asseU ■ AX^en  do  these  rights  expire Original  cost,  $ 

ames  and  location  of  banks  where  the  accounts  of  this  Corporation  are  kept,  stating  credit  line  given  by  each  bank. 

DEPOSIT  BALANCE 
BANK  CREDIT  LINE  ON  STATEMENT  DATE 


it  time  of  the  year  are  your  liabilities  the  heaviest - the    lightest .i 

It  time  of  the  year  is  your  inventory  the  liighesi - -. — the  lowest 

terms  of  sales  is How  often  do  you  lake  accoimt  of  stock 

was  the  last  inventory  taken Is  this  statement  based  on  an  actual  inventory. 

)y  whom  was  it  taken If  not  upon  what  basis  is  itatement  made •. 

does  your  fiscal  year  end Do  you  sell  your  notes  through  broker*...- — Who...... 

rate  of  interest  do  you  pay  on  money  deposited  with  the  Corporation - per    cent 

foregoing  statement  and  report  been  personally  verified  by  some  officer  of  the  Corporation 


For  the  purpose  ot  procuring  credit  from  rime  to  time,  the  undersigned  hereby  makes  to  you  the  foregoing  statement  of  die  condition  of  die  undersigned 

„ day 19. ;   and  the  undersigned  hereby  maintains  and  guar- 

that  said  statement  it  in  ail  respects  true  and  correct;  and  you  may  consider  taid  ttalemeni  at  to  the  pecuniary  responsibility  of  the  undersigned  as 
ling  to  be  true  and  correct  until  written  notice  of  a  change  is  given  to  you  by  die  undersigned. 

In  consideration  of  the  granting  of  such  credit,  we  agree  that  if  we  at  any  time  stop  payment  or  become  insolvent,  or  comnit  an  «!  of  bankruptcy. 
my  of  the  representations  made  herein  prove  to  be  untrue,  or  if  we  fail  to  notify  you  of  any  material  change  as  before  agreed;  d»en  and  m  eiUier  tucK 
11  our  obligations  held  by  you  shall  immediately  become  due  and  payable  witfiout  demand  or  notice,  and  the  same  may  be  charged  agamsl  the  balance 
'  deposit  account  kept  by  us  widi  you.  we  hereby  giving  a  continuing  lien  upon  such  balance  of  deposit  account  from  time  to  time  existing  to  secure  all 
ligations  held  by  you. 


(Sign  Corporation  Name  here) 
5!«»*^ -•- ®'- ^) 


THE  PEOPLE  OF  THE  STATE  OF  MICHIGAN, ENACT: 


action  1.  Whoever  wilfully  and  knowingly  makes  any  false  statement  m  writing  of  his  or  her  properly  valuation,  real  or  personal,  or  to*'  <>'  f.^* 
:  indebtedness,  for  the  purpose  of  obtaining  credit  from  any  person,  company,  co-partnership,  association  or  corporation,  shall  b«  deemed  guilty  «»  •  »«"^ 
non  conviction  thereof  mav  be  imDrisoned  in  the  state  prison  for  a  period  of  not  exceeding  one  year  and  fined  any  sum  not  ezeeedtiis  one  thowmd  dollar*. 

Size  of  original  7^  x  10^ 


pon  conviction  thereof  may  be  imprisoned  in  the  slate  prison  for  a  period 
>ved  May  13.  1909. 


115 


STATEMENT  FORMS  FOR  BORROWERS        117 

After  securing  the  statement,  then  comes  the  important  task 
of  dissecting  or  analyzing  it.  When  statements  first  came  into 
vogue  they  were  considered  a  sort  of  temporary  memoranda 
to  be  read  and  filed  away  and  forgotten.  This,  however,  was 
a  phase  of  short  duration,  and  l^efore  long  the  bank  credit  man 
realized  that  a  real  analysis  of  the  statement  paid  big  returns, 
and  so  analysis  of  a  kind  began.  Now  nearly  every  bank  that 
keeps  any  sort  of  credit  files  makes  some  sort  of  an  analysis.  Sys- 
tem has  been  introduced  where  chaos  reigned,  and  credit  files 
have  doubled  and  trebled  in  value. 

The  first  thing  that  suggested  itself  to  the  credit  man  was  com- 
parison between  statements  of  different  dates,  and  so  compara- 
tive analysis  forms  sprang  into  existence.  These  forms  are,  for 
the  most  part,  columnar  in  form,  having  a  separate  column  for 
the  figures  of  each  year  and  one  column,  generally  at  the  left 
of  the  sheet,  in  which  is  printed  the  main-  items  appearing  on  a 
balance  sheet.  In  general  the  assets  are  at  the  top  of  the  sheet 
and  the  liabilities  below.  The  sheets  are  from  five  to  twenty 
columns  wide,  as  best  suits  the  whims  or  fancy  of  the  credit  man. 
The  writer  prefers  the  sheet  with  five  or  six  columns,  as  beyond 
that  width  it  sometimes  becomes  difficult  to  follow  the  lines  easily 
and  with  accuracy.  Some  who  prefer  the  long  sheet  and  rec- 
ognize this  trouble  overcome  it  by  numbering  or  lettering  the 
lines  and  injecting  a  small  column  at  intervals,  of  say  four  col- 
umns in  width,  on  which  are  printed  the  numbers  or  letters  of  the 
line.  This  makes'it  decidedly  easier  to  run  the  eye-  along  a  long 
line  and  keep  accurate  track  of  the  items. 


118  THE  BANKER'S  CREDIT  MANUAL 


THE    COMPARATIVE    ANALYSIS    SHEET 


Preceding  a  discussion  of  the  use  of  these  analysis  sheets  it  may  S 

be  well  to  show  what  they  are  like  so  that  the  reader  may  more  J 

easily  understand  their  use.  They  are  all  based  on  the  same 
idea,  namely,  setting  side  by  side  the  figures  from  a  consecutive 
number  of  statements  so  that  their  relation  to  one  another  may 
become  perfectly  clear. 


c:i 

B  Receivable 

Ats 

Ainces 

Gn 

Wchandise,  finished 

i(chandise  unfinished 

R  Material 

- 

Total  Quick  Asset. 

Sksand  Bonds 

kf-iberships 

Eators  and  Warehouses 

N  hinery,  Fixtures  and  Eqpt. 

llEsUte  andBuildjngs  (Plant) 

I  Estate  (Other) 

ems,  Patents,  Goodwill,  Etc. 
from  Stockholders 

,  Ins.  and  Expenses  Prepaid 

cdlaneous 

- 

Total  Slow  Assets 

TOTAL 

LIABILITIES 

- 

s  and  Undivided  Profits 
'  and  Contingent  Accts. 

- 

Working  Capital 

;.  Payable 
_ro'jnts  Payable 
iiosits  of  Money 
•ockholders 

"   ..led  Debt  (Due                      ) 
on  Plant  and  Real  Estate 

- 

Total   Liabilities 

TOTAL 

♦ 

tal  Sales 

DBS  Profit 

tual  Expense  of  business 

|d  Debts  Charged  off 

l^preciation 

'vidends 

ofits  to  Surplus 

The  brok 

en  c 

las] 

be 

s  a 

Si 
trig 

ze  c 

jht< 

f  or 
mdl 

igin 
eft 

11 

al8 

side 

9 

Hxl 
s  indi 

cate  t 

he 

ho 

rij 

jon 

tal 

n 

ilir 

ig 

- 

- 

f                      COMPARISON  OF   STATEMENTS 

OF 

RESOURCES 

1 

" 

Stock  in  Trade, 

_ 

Good  Bills  Receivable, 

Good  Open  Accounts,  less   than         months  old, 

Good  Open  Accounts,  more  than         months  old. 

Cash  on  Hand  and  in  Bank, 

~ 

Machinery  and  Fixtures, 

~ 

Real  Estate, 

- 

Total, 

LIABILITIES 

«  >.  (   Promissory  Notes  to  Banks^ 

2  o       Promissory  Notes  to  Individuals, 
OQ           Accounts  Payable, 

- 

Promissory  Notes  for  Merchandise, 

Accounts  Payable  for  Merchandise, 

_ 

61 1 

- 

Mortgages, 

~ 

TOTAL  LIABILITIES, 

, 

NET      j^j^  Capital  Paid  In 
WORTH  J        Surplus  and  Profits. 

- 

Total. 

1 

Total  Quick  Assets. 

LIABILITIES 

Excess  Quick 

Indirect     )  0"  Customers  Paper  Discounted, 
Liabilities   1  o^  q^^^^  p^p^^ 

Sales, 

Average  Balance, 

- 

Size  of  original  8  x  lOj^ 
The  broken  dashes  at  right  and  left  sides  indicate  horizontal  rules 


121 


ACCOUNT  OPENED 


BUSINESS                                                                                                                                                          INTRODUCED  BY 

ASSETS 

CASH 

ACCOUNTS  RECEIVABLE 

NOTES  RECEIVABLE 

MERCHANDISE 

OTHER  QUICK  ASSETS 

REAL  ESTATE 
MACHINERY  &  FIXTURES 
OTHER  FIXED  ASSETS 

- 

- 

ACCOUNTS  PAYABLE 
BILLS   PAYABLE 
J^EPOSITS 

*      MORTGAGES 

OTHER  LIABILITIES 

'  NET  WORTH 

- 

_ 

QUICK  ASSETS 
CURRENT  LIABILITIES 
NET  QUICK  ASSETS 

im 

- 

- 

LINE 
REMARKS 

• 

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123 


1 

1 

) 

i  Analysis 

Of 

THE  THIRD  NATIONAL.BANK 

.  SCRANTON,  PA. 

ASSETS      Datel                               1 

aih 

Idso. 

ceh-llec. 
ills  Roe. 

- 

Quick  Jissets 

leal  Estate 

laobinery 

iitures 

niestmanfs 

iundnr 

- 

Oead  Assets 

freasury  Stock 
ioodwili-Pafents 

- 

Total  Assets 

LIABILITIES 

leiasPa}.  (Buks) 

lotesPay.  (Mdte.) 

Icela.  Pay. 

leposits 

}oe  Stockholders 

]iTidend 

• 

• 

• 

- 

Quick  Debt 

Cap.  Stk.  Prof. 
Cap.  Stk.  Con. 
Sorplit 
UfldiT.  Profits 
Bonds-Mtgs. 
Resena 

-1 
-1 

Total  Liabilities 

i 

NET  WORTH 

^ 

Ratio 

'■ 

OiTidond  (Paid) 
Depreciation 
Tearly  let  Profit 
Maiinun  Debt 
Miainua  Dabt 
Inc.  in  Capital 
Dsc.  in  Capital 
Cain  or  drop  in  net 
Owa  nore  than  net 
Salu 
Sta.  tron 
Oireet  Letter 
Iflsvraoce 

1 

1 

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125 


r 


AME 


ACCOUNT  OI*ENeO 


ntpATION 

USINESS                                                                                                                                                    INTRODUCED  BY 

ASSETS 

_ASH 

CCOUNTS  RECEIVABLE 
_3T6S  RECEIVABLE 
_ERCMANDISE 

TMER  QUICK  ASSETS 

- 

_  CAL  ESTATE 

_,ACHINERY  &  FIXTURES 
_TMER  FIXED  ASSETS 

- 

LIABILITSES 

. CCOUNTS  PAYABLE 
.ILLS  PAYABLE 
^.EPOSITS 

; 

I 

_10nds  oh  mortgages 

_:apital 

_1URPLUS 
JESERVE 

- 



.auiCK  assets 

CURRENT  LIABILITIES 

- 

.^ATIO  Q.  a.  to  LIABILITIES 
^ANNUAL  SALES 
.INOORSERS  OUTSIDE  WORTH 

- 

LINE 

REMARKS 


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127 


COMPARISON  OF  STATEMENTS 


ASSETS 

1           1 

1           1 

■" 

(h  on  Hand  and  in  Bank, 
lis  Receivable,  all  good,  on  hand, 
""lis  and  Acct'8.  Rec.  due  from  Officers  or  Stockholders, 
**.  ounts  Receivable,  all  good,  due  from  customers, 
'    ndise,  finished. 
:idise,   unfinished, 
'  uerlal, 

I 

" 

- 

^^B                                        TOTAL  QUICK  ASSETS. 
■Rtate, 

^Mlngs, 

jchinery.and  Tools, 

2]rniture  and  Fixtures, 

^I'paid  Insurance, 

I 

~ 

TOTAL  NON-CURRENT  ASSETS, 

TOTAL, 

LIABILITIES 

1 

1 

1 

1 

layable  for  Merchandise, 

I'ayable  negotiated  to   Banks, 
:,  Payable  otherwise  disposed  of; 
_  Is  and  Accounts  Payable  due  Ofllcers  or  Stockholders. 
_   n  Accounts,  not  due, 
_  en  Accounts,  past  due, 
^  posits  of  Money, 
_  <  rest  Accrued, 

:oll  and  Salaries  Accrued, 
(d  for  Taxes, 

- 

TOTAL  QUICK  LIABILITIES, 
ins  or  Mortgages  on  Real  Estate, 
ndcd  Debt, 

j 

1 

i                                                  TOTAL  LIABILITIES, 
•serves, 

! 

».pital, 

^rplus,  including  undivided  profits, 

-  t  Worth, 

^ 

TOTAL. 

-)tai  Quick  Assets, 
-)tal  Quick'  Liabilities. 

- 

.<ces9  Quick, 

- 

atio. 
.lies, 

,et  Profits  Last  Year's  Business, 
"ivWends  or  Withdrawals, 
.isurance  on  Merchandise, 
.isurance  on  Real  Estate, 
.mtlngent  Liability, 
Jatslde  Worth  of  Sureties.  , 

< 

The  broken  dashes  a 

5iz 
t  r 

e  oi 
ighl 

For 

t  ar 

id 

tial 
eft 

19 

.  si( 

2X 

les 

12M 
indi 

cate 

hor 

izon 

tal  r 

ule« 

5 

^ 

STATEMENT  FORMS  FOR  BORROWERS        131 

While  it  is  desiral^le  to  secure  statements  on  the  bank's  own 
form,  it  is  not  always  possible  to  do  so,  and  statements  come  in 
made  up  on  entirely  different  lines  and  with  entirely  different 
groupings  of  figures  that  must  be  combined  in  various  ways  to 
fit  the  bank's  method  of  analysis.  x\fter  a  time,  if  the  credit  man 
relies  entirely  on  his  memory,  it  is  often  difficult  to  determine 
just  what  figures  were  grouped  to  make  up  certain  totals  on  the 
comparison  sheet.  To  avoid  this  confusion  the  writer  has 
for  a  long  time  adopted  the. policy  of  checking  each  item  on  the 
balance  sheet  with  a  small  dot  if  it  is  entered  directly  on  the 
analysis  sheet,  as  an  item  by  itself,  and  using  the  small  letters  of 
the  alphabet  to  indicate  when  certain  items  have  been  grouped 
into  one  total.  Thus  all  the  items  checked  ''a"  will  be  found 
under  one  total,  all  checked  "b"  under  another  total,  and  so  on. 
This  helps  materially  in  checking  back  an  old  statement  and  also 
makes  it  possible  to  read  through  a  complicated  statement  quickly 
by  checking  items  to  be  grouped  so  that  this  work  can  be  done 
readily  by  an  assistant,  or  if  the  assistant  does  the  work  it  pro- 
vides an  easy  way  of  checking  his  decisions  as  to  grouping. 

Straight  comparative  analysis  puts  into  relationship  the  actual 
items  of  several  statements  so  that  their  increase  and  decrease 
can  Idc  seen.  But  the  credit  man,  in  groping  for  some  law  for 
credit,  felt  the  need  for  some  kind  of  a  proportional  study.  There 
appeared  to  be  two  main  groups  of  assets  and  liabilities.  Those 
of  a  strictly  commercial  type,  liquid  and  quick,  and  those  of  a 
capital  type,  funded  or  slow.  Inasmuch  as  the  banks  are  truly 
and  economically  interested  in  commercial  loans  for  commercial 
purposes  a  comparison,  or  ratio  establishing,  between  the  quick 
or  current  assets  and  the  quick  or  current  liabilities  suggested 
itself  as  a  matter  worthy  of  consideration.     This  question  of  es- 


132  THE  BANKER'S  CREDIT  MANUAL 

tablishing  a  ratio  between  the  current  items  has  iDecome  almost  a 
fetish  and  guide-all  with  many  credit  men  to-day.  It  is  the  one 
acknowledged  attempt  at  standardization  that  comparative  analy- 
sis has  produced. 

THE    TWO    FOR    ONE    THEORY 

In  liquidation  it  is  a  fact  that  the  assets  generally  shrink  by  a 
very  considerable  amount,  while  the  debts  have  a  most  uncom- 
fortable habit  of  remaining  fixed  or  perhaps  even  mounting  on  ac- 
count of  contingent  liabilities  not  reported.  This  has  led  to  the  de- 
mand that  there  be  a  margin  sufficient  to  allow  for  a  considerable 
shrinkage  of  assets  and  still  leave  enough  to  pay  for  the  quick 
or  current  debt,  leaving  the  plant  and  other  fixed  assets  to  take 
care  of  the  funded  debt  or  provide  the  stockholders  with  a  small 
dividend.  Experience  has  fixed  upon  a  ratio  of  two  dollars  of 
quick  assets  for  every  dollar  of  quick  liabilities.  There  has,  how- 
ever, been  no  scientific  method  used  in  establishing  this  ratio  or 
requirement,  and  in  many  cases  it  is  neither  sound  nor  economic, 
and  least  of  all  safe  as  a  credit  guide.  It  is,  however,  a  law  of 
comparative  analysis  and  serves  a  purpose,  as  it  tends  to  create  a 
margin  of  safety. 

SOME  POINTS  TO  BE  WATCHED  IN   COMPARATIVE  ANALYSIS 

When  looking  over  and  analyzing  a  statement,  round  figures 
in  even  hundreds  with  no  dollars  or  cents  should  be  viewed  with 
a  very  decided  skepticism.  They  are  almost  invariably  the  result 
of  estimates  and  not  real  records.  Such  estimates  are  usually 
optimistic  and  the  real  condition  is  not  truly  displayed. 

Almost  all  bank  forms  now  have  a  question  concerning  con- 


STATEMENT  FORMS  FOR  BORROWERS        133 

tingent  liability  and  an  answer  to  this  question  should  be  insisted 
upon,  as  should  its  sister  question  covering  accounts  receivable 
pledged  or  hypothecated  in  any  way. 

Sales  are  a  most  important  item  in  measuring  up  a  statement, 
and  the  supplying  of  this  feature  should  be  one  of  the  most  firmly 
insisted-upon  points.  A  fuller  understanding  of  why  this  is  so 
is  discussed  in  the  next  chapter. 

The  operating,  or  profit  and  loss,  statement  is  also  an  im-  "] 
portant  item,  on  the  securing  of  which  the  bank  man  can  well 
spend  some  diplomacy  if  necessary.     If  a  company  is  making 
money  and  can  show  it  by  an  accurate  operating  statement,  it  has 
passed  the  first  test,  because  making  a  profit  is  the  real  test  of  j 
going  ahead. 

Hardly  second  to  the  operating  statement  in  importance  is  a 
proper  reconcilement  of  the  surplus  account.  The  statement  used 
by  banks  in  the  Cleveland  Clearing  House  Association,  shown  in 
an  earlier  part  of  this  chapter,  contains  such  a  form  on  page 
96.  The  use  of  this  form  will  clarify  the  atmosphere  and  make 
it  possible  for  the  credit  man  to  understand  the  surplus  account 
very  much  better.  The  adoption  of  this  as  a  regular  method  of 
analysis  is  strongly  advised. 

As  the  merchandise  is  one  of  the  main  current  assets  in  most 
statements,  the  bank  man  should  know  how  it  is  protected  against 
loss  by  fire,  theft,  explosion  or  some  act  of  providence.  The 
insurance  carried  should  be  enough  to  cover  the  risk  and  the 
bank  credit  man  should  certainly  know  how  much  insurance  of 
all  kinds  the  company  has.  This  also  includes  use  and  occupancy 
insurance.  Moreover,  if  there  is  the  slightest  doubt,  the  credit 
man  should  know  the  forms  of  policy  and  the  companies  writing 
them,  so  that  he  may  judge  the  real  worth  of  the  insurance. 


\ 


134  THE  BANKER'S  CREDIT  MANUAL 

SYNOPSIS  OF  STATEMENTS   FOR   LOANING  OFFICERS 

Sometimes  it  may  be  desirable  to  give  the  essence  of  a  state- 
ment to  several  officers  of  the  bank  without  necessarily  taking 
the  whole  statement  up  with  them.  It  may  also  be  a  comfortable 
thing  for  the  credit  man  to  have  positive  proof  that  he  was  not 
derelict  in  his  work  when  a  financial  death  occurs.  The  follow- 
ing is  a  short  analysis  form  that  may  be  filled  out  and  circulated 
among  the  proper  officers,  receiving  their  initials.  It  is  a  six 
by  five  card  that  can  be  folded  for  filing  in  a  three  by  five 
standard  file.  It  serves  as  a  notice  of  change  in  the  condition  of 
a  borrower,  the  receipt  of  a  new  statement,  and  is  proof  that  the 
loaning  officers  have  had  the  essence  of  the  statement  before 
them. 


1 

T 

t=== 

Total  Liabilities, 

Reserves. 

Net  Worth. 

Total  Assets. 

1 

Line                        Date 

Ave.. 

'i 

Balance, 

j 

= 

^        Total  Quick  Assets, 

r        Total  Quick  Liabilities, 

':        Excess  Quick  Assets.                                                                 • 

Katio. 

Sales. 

Insurance  on  Merchandise, 

Insurance  on  Real  Estate, 

Dr.          Proifit  and  Loss  Account,  Fiscal  Year  Ending                       191        Cr. 

Actual  expense  of  conductine  business. 

II        I 
1 

r.RO^v^  PROFITS                            1 

1         Bad  Debts  charged  off. 

Charged  off  for  depreciation. 

Dividends.  Withdrawals,  $ 

■\        Surplus  Profits, 

From  Other  Sources. 

'                       Net  Profits.                                              11 

1 

TOTAL. 

1 

TOTAL. 

j 

135 

CHAPTER  V 

Internal  Statement  Analysis 

Comparative  analysis  is  just  what  its  name  implies.  It  is  a  com- 
parison of  statements  of  two  or  more  years  limited  to  placing  side 
by  side  the  items  of  two,  or  several,  statements  and  comparing 
them  as  to  increases  or  decreases  in  bulk.  The  more  advanced 
comparative  analysis  includes  the  placing  in  ratio  relationship 
of  the  current  assets  and  current  liabilities. 

THE  CURRENT  RATIO 

This  study  of  the  current  ratio  led  to  the  observation  of  one 
law  of  credit.  This  is  that  an  increase  in  current  debt  accom- 
panied by  an  equal  increase  in  current  assets  reduces  the  current 
ratio.  On  this  account  many  credit  men  have  fallen  into  a  com- 
placent habit  of  reading  the  statement  by  making  an  analysis  of 
the  current  ratio  and  noting  how  the  items  of  current  assets  and 
current  debt  increase.  If  either  the  one  increases  or  the  other 
decreases  so  as  to  leave  the  current  ratio  on  a  two  for  one  basis 
they  have  felt  moderately  secure  in  calling  the  statement  good. 
It  is  a  most  common  thing  to  hear  a  statement  passed  or  con- 
demned because  it  is,  or  is  not,  a  two  for  one  statement. 

It  was  not  so  very  long  before  the  borrower,  understanding 
the  mathematics  of  the  statement,  found  that  this  rule  had  fal- 
lacies, and  that  by  taking  advantage  of  them  he  could  benefit  his 
standing.   And  so  there  came  about  the  practice  now  commonly 

137 


138  THE  BANKER'S  CREDIT  MANUAL 

known  as  dressing  the  statement.  There  is  nothing  actually  dis- 
honest in  this,  as  it  may  disclose  a  real,  even  if  temporary,  con- 
dition, and  it  is  only  the  desire  of  the  borrower,  as  it  is  his  right 
also,  to  put  his  best  foot  forward,  that  prompts  him  to  dress  his 
statement.  How  this  is  done  can  best  l^e  explained,  perhaps,  by 
example.  Let  us  suppose  two  conditions,  one  with  a  current  ratio 
of  about  two  for  one  and  a  fairly  liberal  debt,  and  the  second  in 
which  the  merchant  has  realized  on  some  of  his  current  assets, 
by  sale  or  collection,  and  has  used  the  proceeds  to  reduce  his 
current  debt  by  paying  down  his  current  obligations.  This  is 
what  dressing  the  statement  amounts  to  and  the  result  is  some- 
times quite  startling  in  its  effect  upon  the  current  ratio.  For  sim- 
plicity's sake,  only  the  more  important  items  going  to  make  up 
the  current  ratio  will  be  used : 

First  Condition  Second  Condition 

Cash    $10,000  $3,000 

.  Receivables    55,000  30.000 

Merchandise    100,000  75,000 

Total  current    $165,000  $108,000 

Notes    payable    $50,000  $18,000 

Accounts  payable  40,000  15,000 

Total  current  debt $90,000  $33,000 

Ratio    183%  327% 

In  this  case  both  the  current  assets  and  liabilities  have  been 
reduced  by  fifty-seven  thousand  dollars,  presumably  by  the 
realization  on  twenty-five  thousand  of  receivables,  the  sale  of 
twenty-five  thousand  of  merchandise  and  the  use  of  seven  of  the 
ten  thousand  cash.  This  is,  of  course,  a  most  extrerne  and  fanci- 
ful case  and  one  that  would  hardly  be  equaled  in  real  life.  But 
degrees  of  this  kind  of  dressing  are  practised  almost  daily.  If 
this  decrease  had  been  utilized  to  only  the  extent  of  thirty  thou- 


INTERNAL  STATEMENT  ANALYSIS  139 

sand  the  ratio  would  have  been  raised  to  about  two  hundred 
twenty-three  per  cent.,  or  well  above  the  supposed  safe  margin 
of  two  for  one,  or  two  hundred  per  cent. 

Because  of  this  condition  a  company  may  be  of  an  entirely  dif- 
ferent proportion  very  soon  after  the  issue  of  a  statement  by 
simply  returning  to  normal.  For  this  reason  it  is  good  policy  to 
attempt  to  get  some  expression  concerning  the  maximum  debt 
during  the  year  and  the  highest  inventory  point,  etc.  This  in- 
formation is  a  healthy  thing  for  the  bank  credit  man  to  have  on 
file  and  may  help  quite  materially  to  make  clear  certain  points 
that  mere  comparative  analysis  leaves  rather  clouded. 

If  the  current  ratio  is  to  l^e  considered  a  measure  of  the  credit 
standing  or  condition  of  a  company,  or  even  if  it  is  only  the 
starting  point,  it  certainly  would  seem  to  be  a  logical  thing  to 
attempt  to  test  the  current  ratio  itself  in  some  way.  In  credit 
work  nothing  should  be  taken  for  granted  and  it  should  be  the 
ambition  of  every  credit  man  to  get  beyond  the  third  ring  of 
investigation. 

RECEIVABLES  TO  MERCHANDISE  RATIO 

Generally  the  two  largest  factors  of  the  current  assets  are  mer- 
chandise and  receivables,  taking  notes  or  bills  receivable  and  ac- 
counts under  one  head.  Economically  these  two  types  of  items 
are  in  different  spheres.  The  first  is  a  material  product  and  the 
second  is  within  the  realm  of  credit.  In  a  manufacturing  plant 
there  are  three  distinct  phases  in  arriving  at  the  point  of  re- 
ceivables. The  first  is  that  of  raw  material,  the  second  that  of 
manufactured  material,  and  the  third  the  form  of  receivable. 

There  is  no  fundamental  difference  between  the  raw  material 


140  THE  BANKER'S  CREDIT  MANUAL 

and  the  manufactured  material  except  that,  the  latter  being  in  a 
fabricated  state  is  more  easily  disposed  of  in  a  limited  market. 
Between  merchandise  and  receivables,  however,  there  is  a  very 
vital  difference  and  one  that  has  a  most  decided  influence  upon 
the  current  ratio.  Due  largely  to  the  insistence  of  bank  credit 
men,  merchants  are  now  quite  generally  carrying  their  merchan- 
dise at  cost.  In  fact,  it  is  insisted  upon  in  most  instances.  How- 
ever, when  merchandise  has  been  transformed  into  a  book  ac- 
count or  a  note  receivable,  this  condition  of  cost  vanishes,  as  the 
receivable  represents  cost  of  every  kind  plus  profit.  The  follow- 
ing table,  while  imaginary,  will  serve  to  elucidate  this  develop- 
ment : 

First  State  Second  State  Third  State 

A.  Raw  material  $25.00  $25.00  $25.00 

B.  Labor  cost  added   25.00  25.00 

C.  Added  for  overhead,  profit, 

etc 25.00 

Total  assets   (current).... $25.00  $50.00  $75.00 

D.  Necessary  borrowings   ....$12.50  $12.50  $12.50 

E.  Additional   borrowings    12.50  12.50 

F.  Additional  borrowings    

Total    liability    (current)  .$12.50  $25.00  $25.00 

Current  ratio   200%  200%  300% 

The  explanation  of  this  table  is  as  follows : 

Line  A  represents  the  cost  of  the  raw  material  at  each  point 
from  the  time  it  is  simply  raw  material  up  to  the  time  it  is  con- 
tained within  the  receivables. 

Line  B  represents  labor  cost  in  a  like  manner,  which  must  be 
added  to  material  cost  to  get  cost  of  merchandise  in  inventory. 

Line  C  represents  amount  added  to  cost  of  merchandise  when 
merchandise  is  sold  to  cover  office  overhead,  profits,  etc. 

Line  D  represents  borrowings  or  other  credits  used  to  purchase 
raw  material  in  addition  to  the  manufacturer's  own  money. 


INTERNAL  STATEMENT  ANALYSIS  141 

Line  E  represents  necessary  additional  borrowings  to  carry  on 
the  cost  of  manufacture  to  a  point  where  the  merchandise  has 
become  finished  goods  ready  for  sale. 

Line  F  indicates  that  there  has  been  no  need  for  additional  bor- 
rowings or  use  of  credit  to  transform  the  finished  merchandise 
into  a  receivable. 

In  this  example  we  suppose  that  the  first  column  represents 
raw  material  and  that  a  debt  has  been  assigned  to  bring  into  relief 
the  two  for  one  theory.  To  reach  the  second  stage  the  manufac- 
turer has  had  to  expend  money,  half  of  which  we  have  presumed 
he  has  had  to  borrow  or  has  finance  by  credit.  The  transition 
to  receivables  with  their  injected  profits  has  not  necessitated 
further  credit  or  debt,  and  the  ratio  has  risen  from  two  hundred 
per  cent,  to  three  hundred  per  cent.,  entirely  due  to  the  transition 
from  merchandise  to  receivables.  This  is  a  supposititious  case  and 
it  is  hardly  likely  that  these  exact  proportions  would  exist  in  ac- 
tuality. It  is  certain,  however,  that  the  transition  from  merchan- 
dise to  receivables  is  accompanied  by  a  dislocation  in  the  current 
ratio  in  proportion  to  the  amount  of  injected  profits  as  a  part  of 
the  current  assets.  We  are  prone  to  demand  that  merchandise  be 
carried  at  cost  so  as  not  to  inflate  the  current  ratio,  or  take  profits 
in  advance,  and  we  overlook  the  fact  that  receivables  are  always 
carried  at  market  price,  thereby  inflating  the  ratio  with  impunity. 

This  reasoning  has  been  assailed  by  credit  men  with  the  argu- 
ment that  they  would  rather  have  the  assets  in  the  shape  of  re- 
ceivables than  in  merchandise,  as  they  consider  them  a  better 
asset.  This,  of  course,  is  a  matter  of  opinion.  As  the  merchan-^ 
dise  goes  into  process,  receding  from  raw  material  in  standard 
lengths  and  measurements,  in  just  such  ratio  does  it  narrow  its 
market  to  the  customers  of  the  individual  manufacturer.    Manu- 


142  THE  BANKER'S  CREDIT  MANUAL 

factured  merchandise  is  a  middle  ground,  perhaps,  between  abso- 
lutely raw  staple  material  and  receivables.  As  has  been  said, 
the  choice  as  to  which  is  better  is  a  matter  of  opinion,  but  there 
can  be  no  argument  that  the  transformation  from  merchandise  to 
receivables  increases  the  current  assets  by  an  amount  at  least 
equal  to  the  expected  profits  without  forcing  up  the  debt.  If, 
then,  from  year  to  year  we  find  the  balance  between  receivables 
and  merchandise  swinging  toward  receivables,  we  know  there 
is  stimulation  at  least  toward  increased  current  assets  and  there 
should  be  a  rising  current  ratio.  The  establishing  of  and  re- 
cording of  a  ratio  between  receivables  and  merchandise  is  a  test 
of  the  current  ratio  and  is  one  of  the  internal  tests  which  a  state- 
ment may  be  made  to  give  up  for  the  benefit  of  the  bank  credit 
man.  It  is  the  connecting  link  between  comparative  and  internal 
analysis. 

WORTH  TO  FIXED  ASSETS  RATIO 

There  are  two  kinds  of  capital,  that  which  is  fixed  and  that 
which  is  liquid.  The  fixed  capital  is  represented  by  real  estate, 
buildings,  machinery,  fixtures  and  such  other  physical  properties 
as  are  needed  to  manufacture  properly  at  a  profit.  The  liquid 
or  working  capital  is  the  amount  of  money  the  owners  of  the  busi- 
ness may  have  at  their  disposal  after  they  have  completed  their 
fixed  capital  investment.  Up  to  a  reasonable  point  the  more 
margin  they  have  the  stronger  their  position  because  the  less 
dependent  they  are  upon  others  for  the  necessary  funds  to  run  the 
business.  This  balance  l^etween  fixed  and  working  capital  sug- 
gests an  interesting  study  in  determining  how  much  more  money 
than  plant  investment  the  company  has  to  operate  on.  This  forms 
another  of  the  tests  that  can  be  applied  along  this  line  of  internal 
analysis. 


INTERNAL  STATEMENT  ANALYSIS  143 

While  this  test  is  interesting  when  appHed  to  the  statement  of 
a  company  about  to  begin  operations,  it  is  far  more  interesting 
and  instructive  when  apphed  to  a  company's  consecutive  yearly 
statements.  If  a  concern  show^s  a  continued  increase  in  net  worth 
from  year  to  year  it  may  create  a  false  impression  unless  we 
know  the  relative  uses  to  which  that  increase  has  been  put.  If 
it  has  all  been  put  into  plant  the  proportion  of  liquid  capital  in 
the  business  may  dwindle  until  an  ever-increasing  amount  can 
make  the  company  top-heavy  in  plant  and  put  it  into  such  a  po- 
sition that,  in  time  of  depression,  its  credit  soundness  may  be 
badly  undermined.  It  is  too  easy  in  times  of  prosperity,  or  rising 
prices,  to  be  carried  away  with  the  idea  of  expansion  and  build 
plants  or  purchase  machinery  beyond  reasonable  growth  or  need. 
A  year-by-year  comparison  of  this  internal  equation  will  help  the 
credit  man  to  catch  the  clues  of  undue  plant  expansion  and  make 
it  possible  for  him  to  advise  with  his  customer  so  as  to  ascertain 
whether  such  tieing-up  or  transforming  of  liquid  into  fixed  capi- 
tal is  a  truly  wise  thing  for  the  customer. 

DEBT  TO  WORTH  RATIO 

Akin  to  the  question  just  discussed  of  fixed  and  liquid  capital 
is  the  question  of  debt,  for  debt  is  another  form  of  capital.  It 
is  the  capital  of  commerce  loaned  temporarily  to  the  merchant 
or  manufacturer.  It  might  be  called  the  mobile  capital  of  in- 
dustry. It  is  essential  that  this  form  of  capital  should  be  kept 
mobile,  and  the  mobility  depends  entirely  upon  the  economic  and 
financial  soundness  of  the  company  using  it  for  the  time  being. 
If  a  man  be  operating  on  too  little  of  his  own  capital  and  using 
too  much  of  the  mobile  credit  capital  he  gets  into  a  lopsided  con- 


1 


L 


144  THE  BANKER'S  CREDIT  MANUAL 

dition.  It  is  easy  to  get  into  such  a  position  that  the  weight  of 
this  capital  so  used  is  such  that  it  ceases  to  be  mobile  and  becomes 
fixed,  much  against  the  will  of  the  merchant's  creditors  and  to  the 
detriment  of  general  business  conditions.  Like  the  fixed  capital 
mentioned  in  the  preceding  paragraph,  the  amount  of  mobile  cap- 
ital should  be  measured  against  the  amount  of  money  the  man 
has  himself  invested  in  the  business.  This  should  be  reduced  to 
a  ratio  form  and  this  ratio  should  be  studied  from  year  to  year 
to  see  the  balance  between  owned  and  borrowed  capital.  This 
ratio  is  also  purely  of  an  internal  type  and  forms  the  fourth  in- 
ternal study  of  a  statement  in  this  form  of  analysis. 

INERTIA  OR  SALES  TO  RECEIVABLES   RATIO 

Sales  terms  and  sales  realities  are  not  always  the  same  thing. 
Merchants,  manufacturers  or  jobbers  establish  certain  terms  ac- 
cording to  which  they  plan  to  sell  their  product.  In  some  cases 
these  terms  are  flat  or  net,  while  in  others  they  present  a  compli- 
cated set  of  discounts.  These  discounts  are,  of  course,  offered 
as  an  inducement  for  prompt  pay  and  to  overcome  business 
inertia.  It  therefore  becomes  an  interesting  thing  to  measure  the 
inertia  of  a  company's  receivables  from  year  to  year  and  check 
against  the  sales  terms  as  given  by  the  management. 

If  the  sales  terms  are  sixty  days  net,  then  at  any  given  time  the 
receivables  should  not  be  more  than  one-sixth  of  a  year's  busi- 
ness, or,  if  we  use  the  ratio  system,  for  conformity's  sake,  the 
sales  should  be  six  hundred  per  cent,  of  receivables.  If  the  sales 
terms  present  a  cash  discount,  for  prompt  pay,  it  is  a  moral  cer- 
tainty that  some  customers  will  take  the  benefit  of  the  discount, 
which  would  raise  the  ratio  of  sales  to  receivables  by  an  amount 


INTERNAL  STATEMENT  ANALYSIS  145 

in  proportion  to  the  sales  that  had  paid  within  this  discount  pe- 
riod, so  as  to  avail  themselves  of  the  discount. 

But  with  sales  terms  given  as  sixty  days  net  we  do  not  neces- 
sarily expect  six  hundred  per  cent,  as  a  sales  to  receivables  ratio, 
because  the  statement  may  have  been  taken  just  at  the  peak  of  a 
selling  season.  For  this  reason  this  ratio  should  be  studied  in  con- 
junction with  the  type  of  trade,  the  time  of  the  year  and  the  time 
at  which  such  or  like  customers  are  at  the  peak  of  their  selling 
season.  This  combination  of  conditions  will  help  to  decide  what 
the  normal  inertia  ratio  should  be.  With  this  established  it  be- 
comes very  interesting  to  study  the  ratio  from  year  to  year  and 
see  how  the  inertia  has  increased  or  decreased.  Like  the  re- 
ceivables to  merchandise  ratio,  it  serves  as  a  check  upon  the  cur- 
rent ratio.  If  the  current  ratio  is  stationary  and  the  inertia  ratio 
is  falling,  without  some  excellent  given  reason,  one  may  be  sure 
that,  technically,  the  strength  of  the  current  ratio  is  weakening. 
This  is  true  because  there  being  more  inertia  the  receivables 
are  being  collected  more  slowly  and  hence  are  less  liquid.  This 
falling  ratio  of  sales  to  receivables,  together  with  a  rising  ratio 
of  receivables  to  merchandise  and  a  stationary  or  declining  cur- 
rent ratio  completes  a  cycle  of  bad  features  that,  when  all  are 
present,  is  indeed  a  danger  sign  to  the  careful  credit  man.  This 
forms  the  fifth  of  the  internal  ratio  studies  aimed  at  getting  the 
most  out  of  a  statement. 

MOMENTUM    OR    SALES    TO    MERCHANDISE   RATIO 

Having  taken  one  of  the  phenomena  of  physics  as  a  name  for 
a  ratio  study  we  may  well  take  another  for  a  second  study  along 
similar  lines.     Inertia  being  a  property  of  matter,  by  virtue  of 


146  THE  BANKER'S  CREDIT  MANUAL 

which  it  tends  to  remain  at  rest,  we  may  use  momentum  as  an 
expression  of  the  force  with  which  a  body  is  moving,  in  that  it 
is  the  result  of  multiplying  the  mass  or  bulk  of  the  body  by  its 
velocity.  Of  course,  the  velocity,  when  applied  to  a  commercial 
statement,  is  the  sales  volume,  and  the  mass  that  is  moving  is  the 
merchandise  inventory. 

The  having  of  merchandise  is  a  prime  requisite  for  the  carry- 
ing on  of  business.  The  merchant,  jobber  or  manufacturer  must 
have  goods  to  sell  or  he  goes  out  of  business.  But  the  interesting 
thing  is  to  keep  his  inventory  on  a  level  keel.  Proper  buying  is 
as  important,  in  keeping  a  business  healthy,  as  is  the  selling.  In 
times  of  great  prosperity  and  rising  prices  it  is  a  comparatively 
easy  matter  to  let  enthusiasm  get  the  better  of  judgment.  Too 
many  buyers  take  everything  offered,  whether  it  balances  with  the 
rest  of  the  inventory  or  not.  It  would  seem  ridiculous  for  a 
man  making  canes  to  buy  enough  ferules  for  fifty  thousand 
canes  when  he  had,  or  could  procure,  only  enough  wood  or  other 
material  to  manufacture  ten  thousand.  Of  course,  no  one  would 
do  that.  But  where  there  are  hundreds  or  thousands  of  different 
parts  going  to  make  up  a  complete  article  this  unbalanced  condi- 
tion is  not  as  easy  to  detect,  and  it  is  not  such  an  uncommon  thing 
for  a  manufacturer  to  find  himself  with  three  or  four  or  maybe 
ten  times  as  much  stock  of  some  parts  as  he  has  of  others.  Some- 
times this  is  gross  ignorance ;  sometimes  it  is  carelessness ;  always 
it  is  bad. 

As  a  matter  of  example,  a  case  has  come  to  the  attention  of  the 
writer  where  a  retailer  of  sporting  goods,  who  had  been  very 
successful  for  a  number  of  years,  outgrew  his  ability.  The  state- 
ment indicated  that  the  company  was  financially  sick.  For  a 
number  of  years  it  had  been  losing  its  momentum.     The  punch 


INTERNAL  STATEMENT  ANALYSIS  147 

was  gone  from  it.  Taken  year  by  year  the  sales  were  increasing 
in  volume  but  their  ratio  to  merchandise  was  falling.  Finally, 
conditions  got  so  evidently  bad  that  the  company  was  requested 
to  have  a  thorough  audit  of  its  books  made  by  chartered  account- 
ants, including  the  taking  of  an  inventory.  This  inventory  in- 
dicated that  the  momentum  test  had  shown  up  a  real  w^eakness. 
In  the  merchandise  were  two  separate  kinds  of  merchandise 
items  both  of  a  strictly  seasonal  type.  In  one  case  the  stock  on 
hand  was  enough  for  ten  years'  sale  and  in  the  other  for  five  or 
six.  The  ratio  of  sales  to  merchandise  by  comparison  between  the 
last  two  statements  had  indicated  the  presence  of  overstocking 
and  loss  of  momentum.  The  man  in  charge  was  infected  with 
the  idea  that  it  was  good  to  buy  anything  so  long  as  it  w^as  cheap, 
and  his  inventory  was  loaded  up  with  dead  stock  which,  as  the 
saying  goes,  was  actually  eating  its  head  off.  The  ratio  of  sales 
to  merchandise  by  its  steady  and  then  sudden  decline  had  given 
the  clue  to  the  real  condition,  which  w^as  disclosed  by  the  audit. 

VITALITY  OR  SALES  TO  WORTH   RATIO 

This  is  the  sixth  of  the  internal  analysis  tests.  The  seventh 
and  last  might  be  said  to  uncover  the  vitahty  of  the  statement. 
The  net  worth  of  the  individual  firm  or  corporation  is  the  life- 
blood  of  the  business,  and  the  condition  and  rapidity  of  its  cir- 
culation tells  many  things  to  the  business  doctor  or  bank  credit 
man  just  as  does  the  blood-pressure  test  to  the  practising  physi- 
cian. 

To  do  business,  a  man  or  corporation  must  normally  have 
money  to  start  with.  Only  in  freak  instances  can  success  come 
to  the  one  starting  without  it.  But  as  the  amount  of  money  ac- 
tually needed  varies  'from  time  to  time  during  the  year  the  mer- 


] 


148 


THE  BANKER'S  CREDIT  MANUAL 


chant  must  be  in  a  position  to  keep  his  money  active,  else  the  cir- 
culation lags  and  the  business  falters.  There  are  two  faults : 
first,  too  little  money  invested,  and,  second,  too  much.  In  the  first 
case  the  merchant  is  operating  too  much  on  credit,  is  borrowing 
or  is  being  carried  too  liberally.  This  is  very  expensive,  either  in 
interest,  loss  of  discounts  or  high  prices.  In  the  second  case 
the  merchant  has  unproductive  funds  on  hand  for  a  part  of  the 
year,  which,  being  idle,  return  no  profit.  The  balance  is  be- 
tween. The  trend  of  the  actual  condition  can  be  compared  by 
making  a  ratio  study  each  year  between  sales  and  net  worth.  If 
this  falls  too  low  there  is  idle  money  waste  probable.  If  it  rises 
too  high,  especially  when  connected  with  a  big  debt  ratio,  there 
is  not  enough  net  worth  to  support  the  volume  of  business.  The 
first  is  a  financial  chill,  the  second  a  business  fever.  This  test  is 
perhaps  secondary  but  it  is  a  positive  internal  analysis  and  serves 
to  check  and  explain  dislocations  among  the  other  ratios. 

INTERNAL  COMPARATIVE  ANALYSIS  RECORD 


In  order  to  get  the  full  benefit  of  this  internal  analysis,  com- 
parative records  are  important,  and  the  form  on  the  opposite 
page  suggests  a  way  of  tabulating  these  for  study. 

One  very  good  feature  of  this  system  is  that  everything  is 
reduced  to  a  ratio  which  makes  it  possible  to  compare  the  per- 
formances of  big  and  little  companies.  Everything  being  a  per- 
centage, and  big  companies  being  only  large  by  comparison,  the 
ratios  should,  and  as  a  matter  of  fact  do,  correspond  in  a  marked 
degree.  This  makes  the  basic  study  broader  and  far  more  search- 
ing than  mere  comparisons  of  total  figures. 


rnternal  Analysis 

Date 

Current  Ratio 

1 

Rec— Mdse. 

Worth — Fixed 

Sales— Rec. 

ii 

1 

il 

1 

Sales— Mdse. 

i! 

H 

i 

Sales— Worth 

Debt— Worth 

1 

1 

1 

i 
1 

! 

o 


o 


Size  of  original  IVz  x  10J4 

149 


'    i 


CHAPTER  VI 

Type  Analysis 

In  the  discussion  of  the  statement  so  far  made  we  have  sug- 
gested that  pure  comparative  analysis,  while  of  great  value,  is  7 
liable  to  misinterpretation  because  it  deals  only  in  amounts  in 
the  aggregate  and  does  not  establish  any  real  balance  or  equi- 
librium within  the  statement.  On  this  account  a  system  of 
internal  analysis  was  suggested  as  a  means  of  bringing  to  light 
the  strains  and  stresses  that  exist  within  the  statement.  Mere 
bulk,  size  or  increase  in  any  item  of  the  statement  as  compared 
year  by  year  shows  only  the  skin  of  the  condition.  To  get  at 
the  core  we  must  go  beneath  the  surface  indications  and  see  how 
•strong  the  fabric  is  and  the  stresses  to  which  it  is  being  put.       -^ 

THE  INTERNAL  TESTS 

To  do  this  we  have  established  a  set  of  seven  ratios  to  be  made  ^ 
from  the  component  parts  of  the  statement.  For  the  business 
man  these  are  straws  to  show  him  which  way  his  credit  condi- 
tion is  being  blow^n  by  the  trade  winds.  To  the  bank  man  they 
are  aids  in  detecting  any  attempt  at  dressing  a  statement.  The 
ratios  selected  were  the  already  well-known  current  ratio ;  a  ratio 
between  receivables,  lx)th  notes  and  accounts,  and  merchandise; 
a  ratio  between  capital  and  surplus  and  undivided  profits,  or 
w^orth,  and  non-current  or  capital  assets;  a  ratio  between  total 
debt,  including  both  current  debt  and  mortgages,  bonds  or  other 
funded  debt  and  worth;  a  ratio  between  sales  and  receivable.s ; 
a  ratio  between  sales  and  merchandise  inventory ;  a  ratio  between 

151    -^ 


.    J. 


152  THE  BANKER'S  CREDIT  MANUAL 

sales  and  worth  or  owner's  interest.  The  first  four  of  these  test 
one  another  and  disclose  perhaps  the  physical  stresses  and  coun- 
terbalances of  the  actual  load,  or  body  of  the  statement.  The  last 
three  test  the  momentum,  inertia  and  vitality  of  the  subject  under- 
going diagnosis.  Each  tests  at  least  one  other,  and  all  seven 
^guard  and  disclose  the  condition  within. 

However,  neither  of  these  systems  can  stand  alone,  and  the 
value  of  the  internal  analysis  depends  on  its  being  carried  on  in 
a  comparative  way  showing  clearly  the  changes  in  balances  from 
year  to  year.  For  this  reason  comparative  analysis  depends  on 
its  being  carried  on  in  a  comparative  way  showing  clearly  the 
changes  in  balances  from  year  to  year.  In  this  way  compara- 
tive analysis  comes  into  its  own,  if  used  for  the  various  internal 
ratio  studies  as  w^ell  as  for  the  bare  volume  or  size  figures  of  the 
items  themselves.  The  real  analysis  is  one  of  comparative  in- 
ternal analysis. 

'    METHOD  OF   FIGURING   RATIOS 

Few  credit  students  or  analysts  deny  the  need  of  pure  com- 
parative analysis,  but  some  have  been  found  who  think  the 
method  of  internal  analysis  too  extended  and  complicated  of  per- 
formance to  be  of  any  practical  use.  While  the  explanation 
of  the  reasons  for  this  analysis  may  have  seemed  to  call  for  a 
great  amount  of  figuring  this  need  not  be  the  case  at  all.  There 
are  two  simple  methods  of  figuring  the  ratios  mentioned.  The 
first  is  by  use  of  the  slide  rule  and  the  second  of  a  table  of 
logarithms  and  a  simple  form  for  their  use.  The  writer  pre- 
fers the  logarithmic  method.  This  is  a  trifle  longer,  but  leaves 
liehind  a  written  record  that  can  be  checked  and  which  is,  at 
all  future  times,  available  for  study  and  comparison.  The  use 
of  logarithms  is  not  complicated  and  can  readily  be  acquired  in 
a  few  moments  to  the  extent  needed  in  this  kind  of  work.    The 


TYPE  ANALYSIS  153 

form  on  page   155  shows  a  complete  internal  analysis   for  all 
the  ratios  of  one  statement,  and  the  computations  are  accurate,    , 
neat  for  filing  and  take  only  a  very  few  minutes  to  compute.    The 
length  of  time  to  figure  ought  not  to  exceed  five  to  ten  minutes, 
surely  little  enough  to  spend  in  the  cause  of  greater  accuracy. 

Statement  analysis  consists  in  reading  into  the  figures,  of  an— i 
asset  and  liability  statement,  an  understanding  of  the  financial 
condition  of  the  company  under  consideration.  The  cold  figures 
give  us  nothing  but  facts  stripped  of  personality,  magnetism  or 
expectation.  They  represent  jDurely  a  condition  that  has  been 
arrived  at,  a  station  along  the  road  of  the  company's  progress. 
The  back  track  is  made  reasonably  clear  to  the  credit  man  but  no 
one  knows  what  is  around  the  curve  just  ahead.  The  absolute 
present  is  the  only  thing  that  is  surely  known,  and  based  on  this 
present  knowledge  the  credit  man  prepares  for  the  unknown, 
future. 

"History  repeats  itself"  is  an  old  saw.  Therefore  we  try  to 
forecast  the  future  from  a  knowledge  of  the  past.  We  know  J 
from  a  study  of  business  that  the  probable  commercial  mortality 
in  one  class  of  business  is  greater  than  it  is  in  others.  Certain 
kinds  of  industries  are  affected  for  l>etter  or  worse  by  certain 
social  and  economic  changes.  Crop  failures  affect  different  sec- 
tions of  the  country.  Tariff  changes  may  break  or  make  various 
lines  of  business.  Because  of  these  things  sound  judgment  de- 
mands a  close  and  continued  study  of  underlying  conditions. 
But  in  all  these  things  the  decision  rests  almost  entirely  and  con- 
clusively upon  judgment. 

THE  LAW  OF  AVERAGE 

There  lias  been  no  yardstick  designed  to  measure  business 
conditions  or  developments.    There  is,  however,  a  law  that  is 


154  THE  BANKER'S  CREDIT  MANUAL 

so  accurate  in  its  economic  workings  that  it  controls  the  use 
of  vast  sums  of  money.  It  is  the  law  of  average.  Without  this 
insurance  would  be  a  matter  of  guesswork.  But  because  of  the 
fact  that,  given  enough  known  instances,  an  average  result  can 
be  foretold,  with  an  accuracy  approaching  so  fine  a  decimal  as 
to  be  almost  assured,  it  has  been  possible  to  establish  uniform 
rates  for  insurance  and  to  make  of  this  business  almost  an  exact 
science.  It  is  not  to  be  supposed  this  kind  of  analysis  or  stand- 
ardization can  be  made  for  the  business  of  credit,  with  the  same 
degree  of  certainty  and  accuracy  as  in  the  insurance  field.  But 
the  existence  of  the  law  of  averages,  demonstrated  beyond  argu- 
ment, suggests  that  a  somewhat  similar  method,  at  least,  might 
be  applied  to  business  management  and  credit  work. 

The  adoption  of  the  law  of  averages  in  the  analysis  of  the  con- 
dition of  any  company  leads  to  the  form  of  analysis  that  may 
be  called  "Type  Analysis."  If  we  take  just  one  of  the  analytical 
ratios  we  have  discussed  and  consider  it  from  this  vantage  point 
we  shall  immediately  recognize  the  absolute  necessity  for  type 
analysis.  The  current  ratio,  being  the  most  generally  used  and 
better  known,  will  best  serve  our  purpose  for  this  study. 

A  current  ratio  of  two  hundred  per  cent.,  or  two  for  one,  is  al- 
ready pretty  generally  acknowledged  as  a  starting  point  in  state- 
ment analysis.  Variations  above  and  below  this  are  demanded  or 
allowed  in  exact  proportion  to  the  inspirational  psychology  of  the 
person  reading  the  statement.  There  are  plenty  of  bank  men 
who,  when  reading  a  statement  with  the  idea  of  buying  the  note 
of  the  firm  making  the  statement,  are  hidebound  on  this  one 
feature.  The  first  thing  they  do  is  to  cast  up  this  ratio  and  if  it 
falls  short  of  two  hundred  per  cent,  they  set  aside  the  name  as  a 


» 

Current  Ratio 

• 

Rec.—Mdse. 

■ 

- 

Worth — Fixed  Assets 

Sales — Rec. 

Sales — Mdse. 

Sales— Worth 

• 

Debt-Worth 

155 


I 


TYPE  ANALYSIS  157 

risk  not  up  to  standard.  To  them  two  hundred  per  cent,  at  least 
rules,  and  if  two  hundred  per  cent,  is  evinced  by  the  figures  they 
go  their  way  in  fancied  security,  all  else  being  secondary. 

Being  of  a  curious  turn  of  mind,  the  writer,  some  years  ago, 
decided  upon  a  group  test  of  this  one  thing.  The  current  assets 
and  current  liabilities  of  some  two  hundred  statements  were 
added  and  a  ratio  struck  from  the  totals.  The  statements  used 
were  a  mixture  of  all  kinds  of  business  and  the  ratio  arrived  at 
was  about  two  hundred  ten  per  cent.  This  gave  a  certain  amount 
of  color  to  the  popular  demands  for  a  current  ratio  of  tw^o  hun- 
dred per  cent.  But  during  tJie  course  of  this  experiment  certain 
very  definite  opinions  were  formed,  due  to  the  existence  of  in- 
disputable discrepancies  between  the  individual  figures.  Here  was 
a  set  of  figures  with  a  high  ratio,  there  a  set  of  figures  with  a  low 
ratio ;  so  this  question  arose  quite  logically :  Why  not  *separate 
this  study  into  types  of  business?  It  seemed  more  rational  in 
order  to  measure  the  current  ratio  of  an  individual  dry  goods 
statement,  to  establish  a  total  current  ratio  from  a  large  number 
of  wholesale  dry  goods  companies,  rather  than  to  use  a  mixed 
group,  and  against  this  a  current  ratio  for  dry  goods.  It  seemed 
manifestly  sensible  and  fair  to  take  type  and  measure  it  against 
type  rather  than  against  a  vague  standard  composed  of  one-half 
prejudice,  one-quarter  inspiration  and  one-quarter  fact.  The  ra- 
tio of  two  hundred  per  cent.,  taken  as  a  universal  standard,  is  so 
certainly  unfair  that  type  studies  should  be  readily  accepted  as  a 
substitute. 

TYPES  AN   INTERESTING   STUDY 

With  this  in  mind  the  writer  undertook  to  make  a  study  of  sev- 
eral types  of  industry  in  an  attempt  to  discover  whether  there  was 
really  such  a  thing  as  type.     The  kinds  of  business  taken  as  ex- 


158  THE  BANKER'S  CREDIT  MANUAL 

amples  were  wholesale  grocery,  wholesale  dry  goods  and  whole- 
sale hardware  companies.  A  special  card  was  designed  to  carry 
on  its  face  the  necessary  columns  for  entering  the  items  of  cur- 
rent assets,  current  liabilities,  total  debt,  non-current  assets,  re- 
ceivables, merchandise,  net  worth  and  sales.  Through  the  co- 
operation of  a  number  of  men,  who  were  interested  in  this  study 
and  to  whom  the  writer  acknowledges  his  debt,  it  was  possible 
to  secure  a  large  number  of  reports.  There  may  be  some  unjust 
loading  in  the  totals  used  as  a  basis  for  figuring,  as  the  writer  did 
not  ask  for  the  names  of  the  companies,  in  order  that  there  could 
be  no  possible  breach  of  confidence,  and  on  this  account  also 
there  may  be  some  few  unavoidable  repetitions. 

When  the  figures  were  all  in,  the  seven  ratios  suggested  for 
internal  analysis  were  struck  from  the  total  figures  of  the  various 
items.     The  ratios  taken  from  these  total  figures  are  as  follows : 

Number  of  names  189    "  101  33 

Grocers         Dry  Goods        Hardware 
Type  •    Per  Cent.        Per  Cent.  Per  Cent. 

Current  ratio 244.45  211.89  277.78 

Receivables  to  merchandise  . .  84.59  107.38  82.80 

Worth  to  non-current  assets  .  3\7.36  354.51  445.89 

Sales  to  receivables  658.88  396.67  481.28 

Sales  to  merchandise 577.38  425.91  302.28 

Sales  to  net  worth  348.69  302.16  233.07 

Total  debt  to  net  worth 52.57  78.70  53.65 

The  figures  at  the  top  of  the  type  column  show  the  number  of 
statements  used  in  securing  the  totals  and  the  percentage  shows 
the  proportion  existing  toween  the  various  total  figures  for 
each  type.  This  is  secured  by  dividing  the  first  figure  by  the 
second.  To  make  this  operation  perfectly  clear  we  might,  to 
good  advantage,  express  these  ratios  in  algebraic  forms.  Taken 
this  wav  the  current  ratio  would  read  as  follows : 


TYPE  ANALYSIS  159 

Current  assets 


Current  liabilities 
Receivables 


=  Current  ratio 


Merchandise 


=  Receivable  merchandise  ratio 


It  is  unnecessary  to  express  all  the  ratios  in  this  manner,  as 
these  two  are  indicative  of  the  others. 

When  comparing  the  ratios  of  the  two  types,  grocers  and  dry 
goods,  it  becomes  evident  at  once  that  there  is  a  very  distinct  dif- 
ference between  these  two  types  of  business  in  several  of  the 
ratios.  Before  making  any  analysis  of  the  use  of  these  per- 
centages the  question  arises,  are  these  ratios  really  true  to  type 
or  are  they  bastard  figures  with  no  true  tyf>e  characteristics.  For- 
tunately we  can,  to  a  degree,  answer  this  question  by  the  presen- 
tation of  a  sectional  table  for  the  wholesale  grocer  and  wholesale 
dry  goods  merchant.  At  several  different  points  in  the  compila- 
tion, sub- footings  were  made  and  ratios  struck.  These  sub- foot- 
ing ratios  wxre  as  follows : 

WHOLESALE  GROCERS 


No.  of 
Names 

Current 
Ratio 

Record 
Mdse. 

Worth 
Fixed 

Sales 
Record 

Sales 
Mdse. 

Sales 
Worth 

Debt 
Worth 

Per  Cent. 

Per  Cent. 

Per  Cent. 

Per  Cent. 

Per  Cent. 

Per  Cent. 

Per  Cent. 

42 

261.66 

91.54 

379.71 

614.43 

562.48 

354.34 

50.76 

66 

260.87 

92.06 

399.64 

610.57 

562.13 

356.61 

51.31 

89 

274.52 

93.76 

389.46 

613.49 

575.26 

359.48 

51.60 

115 

248.45 

89.17 

376.47 

606.10 

540.49 

347.23 

54.61 

137 

246.50 

84.59 

320.37  • 

649.51 

549.43 

350.24 

53.14 

189 

244.45 

84.59 

317.36 

658.88 

557.38 

348.69 

52.57 

WHOLESALE  DRY  GOODS 

33 

228.21 

117.00 

409.82 

377.90 

442.13 

298.32 

72.18 

50 

222.65 

113.40 

408.08 

396.78 

449.98 

306.06 

78.56 

101 

211.89 

107.38 

354.51 

396.67 

425.91 

302.16 

78.70 

Even  a  most  cursory  examination  of  these  tables  will  indicate 
that  such  a  thing  as  tyiDe  does  exist.  There  are  some  large  varia- 
tions between  ratios  within  either  group,  but  there  is  little  or  no 


160  THE  BANKER'S  CREDIT  MANUAL 

direct  connection  between  groups.  A  table  study  of  the  groups 
will  show  clearly  the  divergence  that  exists  between  them  and 
the  margin  of  type  that  exists.  By  taking  the  highest  and  lowest 
points  reached  during  the  study  for  each  type  and  comparing 
them  we  get  a  most  interesting  analysis  of  the  type  question. 

CURRENT  RATIO 

Highest  Lowest 

Grocers 274.52  244.45 

Dry  goods    228.21  211.89 

RECEIVABLES  TO  MERCHANDISE,  RATIO 

Highest  Lowest 

Grocers    93.76  84.59 

Dry  goods   117.00  107.38 

WORTH  TO  NON-CURRENT  OR  FIXED  ASSETS 

Highest  Lowest 

Grocers    399.64  317.36 

Dry  goods   409.82  354.51 

SALES  TO  RECEIVABLES,  RATIO 

Highest  Lowest 

Grocers    658.88  606.10 

Dry  goods    396.78  '         377.90 

SALES  TO  MERCHANDISE^  RATIO 

Highest  Lowest 

Grocers    575.26  540.49 

Dry  goods 449.98  425.91 

SALES  TO  WORTH^  RATIO 

Highest  Lowest 

Grocers    359.48  348.69 

Dry  goods   306.06  298.32 

DEBT  TO  WORTH,  RATIO 

Highest  Lowest 

Grocers    54.61  50.76 

Dry  goods    78.70  72.18 


TYPE  ANALYSIS  161 

In  only  one  ratio  do  the  types  overlap  at  any  stage  of  the  de- 
velopment and  in  all  others  there  is  a  substantial  margin  between 
the  types.  In  the  ratio  between  net  worth  and  non-current  or 
fixed  assets  there  is  an  overlapping  between  the  low  figures  for 
dry  goods  and  the  high  figure  for  grocers.  From  the  standpoint 
of  pure  logical  reasoning  there  can  be  very  little  doubt  but  that 
type  does  exist  and  exists  in  a  very  clear  and  concise  way.  The 
type  ratios  are  a  much  more  certain  thing  to  measure  the  individ- 
ual statement  against  than  any  inspirational  idea  or  inherited  ])e- 
lief.  The  old  measure  of  current  assets  of  two  hundred  per  cent., 
or  two  for  one,  goes  glimmering  as  a  standard  when  we  see  how 
far  from  this  ratio  these  two  types  alone  vary. 

TYPES  DIVERGE  FROM  TWO  FOR  ONE 

The  divergence  in  the  type  figures  from  the  two  for  one  theory 
is  very  clearly  shown  by  a  little  thought  applied  to  the  ratios  as 
we  have  them  here.  The  highest  point  reached  for  the  current 
ratio  in  dry  goods  was  228.21  per  cent.  This  was  based  on  total 
figures  from  thirty-three  statements.  This  is  well  above  the  two 
for  one  current  ratio  and  would  be  used,  by  any  one  accepting 
the  tw^o  for  one  standard,  as  a  very  good  margin.  But  likew^ise 
any  one  using  the  two  for  one  standard  and  finding  a  grocer 
statement  of  228.21  per  cent,  would  consider  that  it  also  was 
good,  with  a  fair  margin,  where,  as  a  matter  of  fact,  it  would  be 
16.24  points  below  the  low^est  figure  secured  for  the  grocer  trade. 

There  is  another  interesting  comparison  between  these  types 
when  we  compare  the  receivables  to  merchandise  ratios.  The 
lowest  point  in  the  dry  goods  is  107.38,  representing  the  ratio 
for  one  hundred  and  one  statements.     Even  this  low  figure  is 


162  THE  BANKER'S  CREDIT  MANUAL 

13.62  points  higher  than  the  highest  figure  f(^r  the  grocers.  This 
indicates  that  the  current  ratio  for  the  dry  goods  iDUsiness  has  in 
its  make-Up  a  considerably  greater  amount  of  profits. 

These  two  conditions  suggest  a  comparison  of  the  status  of 
the  receivables  and  their  liquidity.  When  we  take  the  ratio 
test  of  sales  to  receivables,  we  find  the  high  points  for  dry  goods 
at  396.78  per  cent.,  representing  totals  from  fifty  statements 
compared  with  606.10  per  cent.,  the  lowest  point  for  grocers 
taken  from  totals  of  one  hundred  and  fifteen  statenients.  The 
variation  here  is  209.32  points,  which  would  seem  to  indicate  a 
state  of  much  less  liquidness  in  the  receivables  for  dry  goods. 
This  may  not  be  a  fundamental  weakness,  but  is  perhaps  based  on 
more  seasonable  trade  and  different  sales  terms.  But  even  so,  we 
can  easily  see  that  this  type  is  of  very  certain  existence. 

An  analysis  of  the  del)t  ratio  bears  out  the  sales  to  receivables 
ratio  because  it  indicates  very  clearly  that  it  is  customary  to 
transact  the  dry  goods  business  in  a  far  greater  proportion  on 
borrowed  money.  The  lowest  debt  ratio  for  dry  goods  is  72.18 
per  cent.,  which  is  17.57  ix)ints  higher  than  the  highest  grocery 
ratio.  What  would  appear  like  an  extraordinary  debt  for  a  gro- 
cery concern  becomes  a  normal  debt  for  a  dry  goods  company. 

A  detailed  comparison  of  hardware  names  with  the  other  two 
sets  of  ratios  can  not  be  carried  out  here,  but  it  is  no  less  in- 
teresting. In  the  study  as  far  as  it  has  gone  no  consideration 
has  been  given  to  profits,  overhead  and  the  many  other  items  that 
go  to  make  up  the.  profit  and  loss  sheet.  These  would  constitute 
most  interesting  material  to  study  and  codify,  but,  unfortu- 
nately for  the  analyst,  they  are  often  not  forthcoming.  The 
American  business  man  is  more  interested  in  making  handsome 
profits  and  keeping  as  large  a  portion  of  them  in  the  nature  of 
concealed  assets  or  profits  as  he  can,  than  he  is  in  having  them 


TYPE  ANALYSIS  163 

known  even  to  his  own  banker.  This  condition  makes  any  analy- 
sis based  on  pubhshed  net  profits  subject  to  too  great  variations 
of  an  uneconomic  order.  However,  the  withholding  of  these 
figures  may  be  only  a  passing  phase,  and  so  any  computations  or 
group  plan  of  analysis  based  on  or  including  them  is  left  for  a 
future  time  when  more  candor  makes  itself  evident  in  our  busi- 
ness life. 

SECURING  SALES  RECORDS   MOST  IMPORTANT 

The  writer,  however,  can  not  leave  this  part  of  the  subject 
without  commenting  on  the  lack  of  information  that  exists  in  re- 
gard to  sales  of  companies.  The  scope  of  the  figures  in  this  book 
would  probably  have  been  one  hundred  per  cent,  greater  but  for 
the  fact  that  in  nearly  fifty  per  cent,  of  the  reports  returned  the 
item  of  sales  was  missing.  This  is,  of  course,  due  to  either  one  of 
two  things.  First,  the  merchant  in  publishing  his  figures  firmly 
declines  to  give  the  sales,  or,  second,  the  extender  of  credit  does 
not  appreciate  the  value  of  the  sales  item  from  an  analytical 
standpoint  and  therefore, does  not  ask  for  or  insist  on  getting  it. 
But  how  can  we  gauge  the  liquidness  of  the  receivables  if  we  do 
not  know  what  part  "of  the  gross  sales  they  represent  and  so 
know  something  about  actual  and  not  just  the  claimed  sales 
terms?  From  another  standpoint  sales  are  also  most  important. 
How  are  we  to  judge  whether  a  statement  shows  too  much  or 
not  enough  merchandise  inventory  if  we  know  nothing  of  the 
marketing  record  of  the  company?  Or  how  can  we  decide  if 
there  is  or  is  not  enough  money  invested?  An  inventory  may  be 
a  good  thing  or  a  menace  in  proportion  as  to  whether  it  is  a  good 
live  salable  commodity  or  a  horse  in  the  stable  eating  its  head  off" 
in  overhead  and  carrying  charges.  By  all  means  bank  credit 
men  should  be  firm  and  demand  sales  statistics. 


164  THE  BANKER'S  CREDIT  MANUAL 

We  have  considered  three  kinds  of  statement  analysis — com- 
parative, internal  and  type.  The  latter  is  a  combination  of  com- 
parative and  internal,  ])eing  a  comparison  of  the  seven  ratios  for 
an  individual  statement  with  the  ratios  for  that  type  of  business 
as  determined  by  a  basic  study  in  ^\•hich  the  essential  factors  of 
a  total  type  are  brought  into  percentage  relationship.  Pure  com- 
parative analysis  in  which  mere  volume  is  compared  may  pass 
over  conditions  that  a  percentage  analysis  of  the  internal  char- 
acter will  disclose.  For  this  reason  internal  analvsis  s^oes  into  the 
credit  condition  much  more  minutely  than  comparative  analysis. 
When  this  is  carried  on  into  type  analysis  we  can  tell  whether 
the  name  under  discussion  averages  up  to  the  standard  set  for 
that  kind  of  business.  To  make  this  type  study  more  accurate 
there  should  be  a  further  division  within  types  into  economic 
zones  so  that  conditions  in  different  parts  of  the  country  would 
be  thrown  into  relief  in  the  national  study  of  any  one  kind  of 
business. 

The  general  establishment  of  standards,  or,  rather,  averages 
such  as  this,  as  a  universal  thing  ready  for  use,  has  not  yet  been 
accomplished  because  of  the  lack  of  a  central  place  for  such  work. 
It  could  be  done  by  the  government  through,  the  Federal  Re- 
serve System,  or  it  might  be  done  under  the  auspices  of  some 
large  organization  such  as  the  National  Association  of  Credit 
Men  or  the  American  Bankers'  Association.  Or,  finally,  it  might 
be  done  by  private  enterprise.  As  yet,  however,  it  has  not  been 
done  publicly,  as  far  as  the  writer  knows,  except  in  his  own  ex- 
periments. Until  some  national  agency  takes  up  the  compilation 
of  gauges  based  on  averages  and  is  in  a  position  to  furnish  them 
to  bank  credit  men  they  must  supply  themselves,  and  the  time  and 
labor  in  doing  so  is  well  spent. 


CHAPTER  VII 

Discount  Committee  Organization 

The  stockholders  of  a  bank  are  the  owners  of  the  business.  They 
elect  a  board  of  directors,  which  in  turn  elects  or  appoints  a  group 
of  officers.  The  actual  daily  running  of  the  bank  is  the  duty  of 
the  officers.  It  is  their  work  to  undertake  the  routine  manage- 
ment of  the  bank,  meet  the  public  and  carry  out  the  details  of 
policies.  It  is  right,  however,  that  these  policies  should  be  de- 
cided upon  by  the  directors.  In  addition  to  appointing  the  offi- 
cers the  board  of  directors  often  delegates  part  of  its  power  to 
a  sub-committee  known  as  the  discount  committee.  As  its  name 
implies  this  committee  is  entrusted  with  certain  powers  in  con- 
nection with  the  loaning  of  funds.  It  is  to  this  committee  that 
the  officers  are  primarily  responsible  for  the  making  of  loans,  and 
this  committee  itself  is  responsible  in  turn  to  the  directors.  iVnd 
most  interesting  of  all  to  the  credit  man  and  his  department  is 
the  fact  that  a  majority  of  the  decisions  made  are  based  upon  the 
facts  and  analyses  supplied  by  the  credit  department. 

ROTATION   OF   MEMBERS 

The  character  and  composition  of  the  discount  committee,  be- 
mg  as  it  is  a  division  of  the  board  of  directors,  naturally  depends 
in  a  great  degree  upon  the  type  of  the  directorate  itself.  It 
should,  however,  be  so  handled  that  it  will  bring  the  directorate 
as  close  as  may  be  possible  to  a  1)oard  that  is  one  hundred  per 

165 


166  THE  BANKER'S  CREDIT  MANUAL 

cent,  efficient  in  the  actual  directing  of  and  knowledge  about  the 
bank's  affairs.  It  sometimes  happens  that  the  various  discount 
committees  become  more  or  less  fixtures,  and  with  long  tenure 
of  office  usurp  to  a  very  great  extent  the  powers  of  the  board  of 
directors.  To  avoid  this  ingrowing  condition  a  certain  percentage 
of  the  discount  committee  should  rotate  in  office  so  that  within  a 
reasonably  short  time  the  rotation  will  bring  into  active  contact 
with  the  discounting  feature  of  the  bank  each  and  every  bank 
director.  The  length  of  service  should  1)e  great  enough  so  that 
every  borrowing  name  in  the  bank  will  come  under  observation 
several  times. 

In  this  connection  it  might  be  well  to  rememl^er  that  demand 
loans  are  not  of  fixed  maturity  and  on  that  account  may  easily 
rest  dormant  in  the  files.  To  avoid  this  and  to  bring  the  matter 
before  the  discount  committee's  scrutiny  it  is  wise  to  make  the 
replacement  of  all  demand  notes  by  fresh  pai)er  at  least  once  in 
six  months,  and,  if  practicable,  once  in  four  months,  a  definite 
and  fixed  policy  of  the  bank.  At  these  periods  the  renewal,  re- 
duction or  payment  of  important  loans  should  be  a  matter  of  dis- 
cussion by  the  discount  committee.  Abuses  of  demand  loans  are 
common.  It  is  often  a  scheme  of  the  borrower,  outside  of  the 
few-large  centers,  to  get  his  obligations  into  a  class  of  paper  that 
is  not  actively  watched,  with  the  intent  and  purpose  of  getting 
carried  for  longer  periods  without  the  suggestion  of  payment 
that  is  usual  with  time  paper.  It  also  becomes  the  duty  of  the 
credit  department  to  watch  and  stir  up  at  times  these  demand 
loans,  so  as  to  prevent  them  really  becoming  almost  a  capital 
investment  in  w^hich  the  bank  is  economically  a  stockholder  or 
partner  in  the  business. 


DISCOUNT  COMMITTEE  ORGANIZATION       167 

FORMAL  TYPE  OF  ORGANIZATION 

.  The  actual  composition  of  the  discount  committee  is  important, 
as  upon  its  organization  will  depend  a  large  part  of  its  effect- 
iveness. The  president  of  the  bank,  being  the  executive  head  of 
the  corporation,  should  l)e  the  chairman  of  the  discount  commit- 
tee. He  is  primarily  responsible  to  the  stockholders  for  the 
proper  conduct  of  the  bank  from  the  standpoint  of  earnings  and 
is  also  directly  responsible,  in  a  moral  way,  to  the  depositors  for 
the  fundamental  strength  and  safety  of  the  bank  and  the  security 
of  their  funds.  The  responsibility  of  a  president  of  a  bank  is  no- 
where more  positive  than  in  his  leadership  of  the  discount  com- 
mittee. The  senior  vice-president  should  act  as  vice-chairman  of 
this  committee.  It  is  wise  to  have  the  cashier  serve  as  secretary 
and  he  should  keep  regular  minutes  of  each  meeting.  This  is  the 
formal  organization  or  skeleton  on  which  the  discount  committee 
is  built. 

All  the  other  bank  officials  who  are  directly  loaning  officers 
should  be  permanent  members  of  the  discount  committee.  In 
only  exceptional  cases  should  they  let  anything  interfere  with 
their  attendance  at  the  meetings  of  the  committee.  In  addition 
to  the  loaning  officers,  the  manager  of  the  credit  department, 
whether  he  is  an  officer  of  the  bank  or  not,  should  attend  regu- 
larly the  meetings.  His  department  is  responsible  for  the  proper 
accumulation  and  analysis  of  facts  and  figures  and  it  is  a  pretty 
safe  policy  to  have  every  loan  pass  through  his  laboratory  for 
credit  analysis  l^efore  going  before  the  discount  committee.  In 
most  instances  new-business  prospects  w^ill  set  forth  their  credit 
necessities,  and  for  this  reason  the  new-business  manager  should 


168  THE  BANKER'S  CREDIT  MANUAL 

have  free  access  to  the  discount  committee  meetings,  so  that  he 
may  discuss  with  the  committee  such  names  as  he  may  be  expect- 
ing to  sohcit  for  accounts  and  receive  a  certain  amount  of  assur- 
ance that  the  credit  accommodations  will  l)e  allowed  if  the  subject 
in  question  is  in  a  receptive  humor  when  he  calls.  By  handling 
the  matter  this  way  the  bank  can  save  its  new-business  depart- 
ment much  embarrassment.  In  addition  to  the  officers  mentioned, 
who  should  be  regularly  on  the  committee,  the  other  officers  of 
the  bank  should  be  invited  to  attend  from  time  to  time,  as  names 
with  which  they  may  be  personally  acquainted  come  up  for  con- 
sideration. Even  if  there  are  no  instances  of  this  kind  it  is  a 
good  thing  to  have  them  in  attendance  occasionally  so  as  to  keep 
them  in  the  proper  attitude  toward  the  bank's  discount  policies-. 

SIZE  OF  COMMITTEE 

The  number  of  directors,  outside  such  officers  as  may  be  di- 
rectors, who  shall  l3e  assigned  to  the  discount  committee,  is 
largely  a  matter  of  personal  opinion.  It  should,  however,  range 
from  ten  to  twenty  per  cent,  of  the  board  membership.  If  there 
are  twenty  directors  on  the  full  board,  then  from  two  to  four 
non-officer  directors  should  be  serving  at  all  times  on  the  discount 
committee.  The-  other  members  should,  of  course,  have  the  right 
to  attend  at  any  time,  and  if  any  special  matter  is  to  be  considered 
about  which  any  particular  director  is  supposed  to  l>e  well  in- 
formed, a  special  request  for  his  attendance  at  that  meeting 
should  be  made.  In  this  case  it  becomes  the  duty  of  the  director 
to  be  present  and  give  to  the  committee  the  best  judgment  his 
special  knowledge  may  make  possible.  Such  directors  as  are 
assigned  to  duty  on  the  discount  committee  should  allow  a  suffi- 
cient time  so  that  these  meetings  will  not  be  hurried,  and  they 


DISCOUNT  COMMITTEE  ORGANIZATION       169 

should  receive  pay  for  their  time.  The  amount  of  this  remunei-a- 
tion,  of  course,  is  a  matter  of  judgment,  but  it  should  be  al)out 
the  same  as  is  paid  for  attendance  at  directors'  meetings. 

.       FREQUENCY  OF   MEETINGS 

The  frequency  with  which  discount  committee  meetings  should 
be  held  depends  entirely  upon  the  amount  of  business  that  the 
bank  has  on  its  books.  If  it  is  a  small  bank  w^ith  a  rather  limited 
number  of  requests  for  loans,  it  is  possil^le  that  one  or  two  meet- 
ings a  week  will  be  enough  to  satisfy  the  demand.  On  the  other 
hand,  as  the  business  of  the  bank  increases  it  1)ecomes  more  and 
more  necessary  to  have  discount  meetings  daily,  which  is,  of 
course,  the  best  way  to  transact  business,  as  it  does  not  delay  loan 
decisions  beyond  twenty- four  hours  and  therefore  gives  the  bor- 
rower better  service.  It  also  keeps  the  discount  committee  di- 
rectors more  in  touch  with  the  workings  of  the  bank  and  creates 
a  board  of  directors  that  more  nearly  directs. 

In  such  cases  as  when  a  committee  does  not  meet  daily,  or 
where  the  volume  of  work  is  so  great  that  it  can  not  be  trans- 
acted before  the  committee,  it  is  customary  to  put  into  the  hands 
of  the  officers  the  power  of  making  loans  up  to  a  certain  limit. 
In  this  they  are  using  delegated  powers  of  the  discount  committee 
and  generally  submit  their  actions  to  the  committee  at  its  next 
meeting  for  ratification. 

ORDER  OF  BUSINESS 

The  writer  believes  that  systematic  routine,  properly  designed 
and  with  sufficient  elasticity,  makes  it  possible  to  cover  much 
more  ground  in  a  given  time  and  to  better  effect  than  could  be 
covered  by  any  scheme  of  unguided  activity.    It  makes  for  speed 


170  THE  BANKER'S  CREDIT  MANUAL 

in  that  it  follows  regular  channels,  and  it  makes  for  thoroughness 
because  things  are  taken  up  in  regular  order  and  nothing  is  lost 
sight  of  or  overlooked.  With  this  in  mind  it  seems  a  good  thing 
to  establish  an  order  of  business  for  the  discount  committee  to 
follow.  For  the  sake  of  discussion  let  us  assume  that  the  commit- 
tee is  to  meet  every  day  at  a  regular  hour. 

The  first  order  of  business,  after  the  reading  of  the  minutes  of 
previous  meetings,  should  l^e  a  brief  survey  of  the  loans  and  dis- 
counts made  or  extended  the  day  before.  This  serves  two  pur- 
poses. First,  it  gives  the  discount  committee  an  opportunity  of 
knowing  whether  its  actions  granting  loans  or  asking  for  re- 
ductions of  loans  was  followed.  To  get  at  this  accurately  the 
vice-chairman  of  the  committee  should  have  at  hand  the  notejs 
of  the  day  before  and  should  read  the  names  and  amounts.  It 
is  very  good  business  to  have  the  discount  journal  at  these  meet- 
ings and  let  some  one,  preferably  a  director,  check  each  item  as 
it  is  called.  This  provides  a  sort  of  daily  audit  and  check,  of  the 
discounts,  by  the  board  of  directors  and  makes  for  a  much  better 
knowledge  by  the  board  of  the  bank's  true  condition. 

The  second  order  of  business  should  be  the  reading  of  a  list 
of  the  loans  paid  on  the  preceding  day.  This,  together  with  the 
first  order  of  business,  will  disclose  accurately  whether  or  not 
loans  have  been  reduced  as  asked. 

The  third  order  of  business  may  well  be  the  announcement  of 
the  total  loans  made  on  the  preceding  day  and  the  payments  made, 
indicating  the  increase  or  decrease  in  the  outstanding  loans  and 
discounts.  This  keeps  the  committee  informed  as  to  expansion 
or  contraction  of  loans. 

The  fourth  order  of  business  may  be  the  consideration  of  re- 
quests for  credit.    These  should  be  presented  by  one  of  the  loan- 


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DISCOUNT  Application 


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173 


DISCOUNT  COMMITTEE  ORGANIZATION       175 

ing  officers  or  the  manager  of  the  credit  department  and  it  may 
be  a  wise  thing  to  have  them  made  on  a  special  sHp  so  that  at  all 
times  they  will  be  in  the  same  form  and  also  that  the  slip  may  be 
filed  in  the  credit  records  for  possible  future  reference.  The  in- 
sertions are  good  examples  of  such  forms. 

The  manager  of  the  credit  department  may  read  the  request 
for  credit  and  the  reason  for  its  being  a^ked.  He  should  follow 
this  by  reading  the  statement,  giving  the  analysis  of  the  figures 
according  to  his  method  of  analysis,  and  should  lay  before  the 
committee  as  full  a  picture  of  the  true  conditions  surrounding 
the  risk,  as  he  may  be  able.  This  should  l3e  followed  by  such  in- 
formation as  any  loaning  officer  or  director  may  have  concern- 
ing the  risk.  After  this  presentation  and  discussion  the  matter 
should  be  voted  on  by  the  committee  and  the  loan  allowed  or  dis- 
allowed, as  such  vote  might  direct.  Any  member  not  expressing 
a  negative  vote  should  be  deemed  in  the  affirmative,  and  a  record 
of  the  vote  should  l)e  kept  so  that  at  any  future  time  there  can 
be  no  doubt  or  shifting  of  responsibility.  There  being  no  nega- 
tive vote,  all  should  be  equally  responsible  for  the  results  of 
the  loan. 

The  fifth  order  of  business  should  be  the  discussion  of  any 
prospective  business  which  the  new-business  department  may 
have  to  offer  for  consideration. 

The  final  order  of  business  should  be  anything  that  the  officers 
might  want' to  bring  to  the  attention  of  the  committee  or  any  in- 
formation that  the  directors  may  think  of  interest  to  the  offi- 
cers. There  should  be  a  few  minutes  of  round  table  discussion 
devoted  to  the  development  of  the  bank  along  sound  and  pro- 
gressive lines. 


176  THE  BANKER'S  CREDIT  MANUAL 

USE  OF  CREDIT  DEPARTMENT  LOAN   CARDS 

In  connection  with  the  reading  of  loans  made,  loans  paid  or 
reduced  and  lines  of  credit  coming  up  for  consideration,  the  card 
form,  indicated  in  Chapter  II,  makes  it  possible  for  each  member 
of  the  committee  to  get  a  bird's-eye  view  of  the  history  of  the  ac- 
count. To  do  this  requires  little  or  no  time  and  always  keeps 
the  account  fresh  in  the  minds  of  the  committee.  The  following- 
formal  way  is  suggested  as  a  means  of  reaching  this  end : 

Let  the  chairman  of  the  committee  sit  on  one  side  of  the  dis- 
count table  near  the  head.  Let  the  vice-chairman  sit  opposite  him. 
Let  the  manager  of  the  credit  department  sit  on  one  side  of  the 
chairman  and  on  the  other  side  the  two  directors,  and  beyond 
them  the  other  members  of  the  committee.  The  vice-chairman  has 
on  one  side  of  him  the  bank  officer  who  takes  the  record  of  the 
meeting,  and  on  the  other  the  discount  journal,  which  one  mem- 
ber of  the  committee  checks.  With  the  notes  in  front  of  him  the 
vice-chairman  begins  reading  the  loans  made,  and  as  he  starts,  the 
manager  of  the  credit  department  hands  the  card  to  the  chairman. 
This  is  passed  down  the  line  and  the  cards  are  stacked  one  by 
one  as  they  reach  the  last  man.  The  vice-chairman  does  not  wait 
until  the  first  card  reaches  the  end  of  the  line  before  presenting 
the  second  name,  but  goes  ahead  reading  at  a  moderate  rate. 
When  any  member  of  the  committee,  either  by  the  reading  or 
from  the  card,  sees  anything  that  appears  to  him  worthy  of  note 
he  stops  the  proceedings  and  asks  for  discussion.  It  may  seem  a 
detailed  method,  and  one  that  would  cause  delay,  but  operating 
under  this  system  it  is  possible  to  pass  over  a  hundred  namesand 
transact  the  other  matters  as  scheduled  in  thirty  or  forty  min- 
utes, except  where  conditions  surrounding  any  one  name  make 


I 


DISCOUNT  COMMITTEE  ORGANIZATION       177 

it  desirable  to  devote  considerable  attention  and  discussion  to 
that  name.  When  such  a  condition  develops,  the  extra  time 
called  for  is  not  a  burden  but  a  duty  and  also  an  opportunity  for 
the  members  of  the  discount  committee  to  exercise  their  functions 
properly  and  give  to  the  bank  the  benefit  of  their  experience.  This 
is  really  why  they  are  directors  and  officers,  and  with  the  honor 
and  salary  that  come  from  the  position  comes  also  r-esponsibility 
to  stockholders,  depositors  and  business  in  general.  This  duty 
should  not  be  shirked,  even  if  it  can  be,  and  the  hurrying  of  a 
discount  committee  meeting  or  the  slighting  of  its  investigations 
should  not  be  tolerated  by  the  president,  who  as  the  executive 
head  is  primarily  responsible. 

USING  THE  GENERAL  KNOWLEDGE  OF  THE  BOARD 

The  board  of  directors,  if  wisely  chosen,  represents  many  lines 
of  business.  These  will  be  represented  in  turn  on  the  discount 
committee  and  each  director,  as  he  serves  on  this  board,  should 
cooperate  to  the  fullest  of  his  ability  in  giving  to  the  officers  the 
closest  information  that  he  has  on  business  conditions  in  his  own 
or  related  lines.  If  any  director  has  made  a  special  statistical 
study  that  demonstrates  an  unsound  state  in  that  tyjDe  of  business 
in  which  he  is  engaged  he  should  bring  this  information  to  the 
discount  meeting  as  a  guide  to  the  men  who  are  held  directly  re- 
sponsible for  the  bank  loans. 


CHAPTER  VIII 

Cost  and  Profit  of  a  Checking  Account 

There  is  an  element  in  making  loans  quite  apart  from  the  actual 
risk  involved  in  the  loan  itself.  A  loan  already  made  may  be 
perfectly  safe  and  yet  it  may  be  to  the  decided  advantage  of  the 
bank  to  have  the  loan  paid  or  at  least  to  deny  an  increase.  At 
a  different  place  we  spoke  of  the  never-ending  circle  that  runs 
between  deposits  and  loans  and  the  very  close  relationship  that 
exists  between  them.  It  is  this  close  relationship  that  brings  the 
question  of  deposits  to  the  front  when  considering  credit  line 
extensions. 

MARGIN  OF  PROFIT  ON   BANK  SALES  LOW 

In  ordinary  commercial  life  there  is  a  fairly  large  margin  of 
profit  in  sales.  These  will  run  from  five  ptr  cent,  of  the  sales  up 
to  fifteen  or  twenty  per  cent,  without  startling  any  one.  On  the 
other  hand,  the  margin  of  profit  on  loans  is  small,  as  time  money 
rates,  except  in  the  far  west  or  south,  will  on  the  average  seldom 
equal  and  rarely  exceed  six  per  cent.  As  this  rate  covers  the  to- 
tal returns  to  a  purely  commercial  bank,  aside  from  the  earnings 
of  special  departments  such  as  bond  departments  or  the  like,  the 
cost  of  doing  business  must  be  deducted  and  when  this  is  done  a 
very  small  margin  is  left  with  which  to  pay  earnings. 

This  may  perhaps  be  best  illustrated  by  taking  a  unit  example 
and  comparing  the  returns  in  banking  with  the  returns  in  com- 

178 


A  CHECKING  ACCOUNT  179 

mercial  life.  Let  us  take  one  hundred  .dollars  as  such  a  unit.  In 
commercial  life  this  sum  would,  or  could,  easily  be  used  in  such  a 
business  as  would  make  ten  per  cent,  on  sales,  and  where  the  turn- 
over would  be  at  the  rate  of  three  times  a  year.  By  doing  this  the 
hundred  dollars  would  show  sales  of  three  hundred  dollars  and 
the  profit,  on  a  ten  per  cent,  basis,  would  be  thirty  dollars.  In  the 
banking  business,  if  this  one  hundred  dollars  were  continuously 
loaned  for  a  year  the  return  would  approximate  six  dollars.  It 
is  easy  to  see  that  the  great  difference  makes  quite  a  large  dis- 
crepancy in  favor  of  commercial  life.  There  is,  of  course,  com- 
pensation in  that  a  bank  loans  not  only  its  own  money  but  the 
funds  of  its  depositors,  and  on  this  account  gets  a  much  greater 
volume  in  proportion  to  its  own  invested  funds.  In  fact,  loans 
or  discounts  will  at  any  time  run  perhaps  from  ten  to  twelve 
times  the  capital  of  the  bank,  giving  it  volume  on  its  business  and 
hence  earning  capacity. 

A  bank,  as  has  been  said,  making  loans  is  rarely  called  upon 
to  give  up  funds  at  once,  but  generally  accommodates  the  bor- 
rower by  giving  him  a  credit  against  which  he  may  draw.  Banks 
are  compelled  to  carry  a  reserve  of  ten  per  cent,  against  these 
deposits,  whether  created  by  loans  or  by  real  deposits.  As  a  mat- 
ter of  fact,  they  carry  approximately  tw^enty-five  to  thirty  per 
cent,  real  reserve  in  the  nature  of  accounts  with  other  banks, 
generally  called  cash  means.  This  represents  the  available  funds 
against  which  they  may  draw  on  demand  for  the  settling  of 
claims  on  them  through  the  deposits  of  their  customers.  This 
makes  necessary  a  very  great  development  of  a  certain  amount 
of  free  money,  on  deposit,  over  and  above  the  legal  requirements 
so  as  to  have  it  available  for  use  as  reserves  for  further  loans, 
and  for  exchange. 


180  THE  BANKER'S  CREDIT  MANUAL 

* 

THE  BORROWINGS  OF  A  CUSTOMER  SECONDARY  PROFIT 

It  is  a  mistaken  idea  that  a  customer  is  doing  a  l>ank  a  favor 
if  he  borrows  all  the  money  he  can  and  leaves  no  balance  to  speak 
of  on  deposit.  The  openness  of  the  money  market  and  the  fluidity 
of  credit  disproves  and  sets  aside  this  contention,  because  banks 
can  always  find  investment  for  any  excess  credit  they  may  have 
at  their  disposal,  by  turning  to  the  open  market  and  by  the  pur- 
chase of  commercial  paper.  The  customer  that  does  the  bank  a 
favor  is  the  one  that  deposits  and  does  not  borrow,  thereby  cre- 
ating excess  credit  to  be  marketed  by  the  bank  and  through  which 
the  bank  can  secure  further  connections  because  of  its  ability  to 
extend  credit. 

For  this  reason  the  value  of  a  deposit  account  must  stand  on 
its  own  merits  and  its  value  to  the  bank  is  dependent  upon  the 
cost  of  handling  it  and  the  loanable  funds  it  creates,  entirely  sep- 
arate and  distinct  from  any  borrowings  that  may  be  directly  con- 
nected with  it.  As  a  bank  sells  its  credit  accommodation  and  gets 
in  return  the  market  rate  and  a  balance,  the  value  of  the  account 
is  a  most  interesting  and  potent  factor,  not  in  the  safety  of  the 
loan  but  in  the  desirability  of  the  connection  at  all.  Therefore, 
it  is  advisable  to  have  some  way  of  figuring  the  profit  on  an 
account  to  see  whether  it  is  of  sufficient  benefit  to  make  the  con- 
nection worth  while. 

Exchange  paid  and  received  and  the  length  of  time  items  have 
been  in  transit  without  the  bank  having  use  of  the  funds,  interest 
and  the  like  have,  for  the  most  part,  been  the  factors  that  have 
been  used  in  trying  to  determine  the  cost  of  running  a  checking 
account.  It  is  very  true  that  all  of  these  items  do  enter  into  the 
consideration  of  the  question,  but  there  is  a  more  reasonable  and 


A  CHECKING  ACCOUNT  181 

better  cost  accounting  method  than  that  which  Hmits  itself  to  the 
mere  figuring  back  and  forth  of  these  items. 

COST  OF  OPERATING  CAUSED  BY  PHYSICAL  VOLUME 

If  you  ask  a  logical  question  as  to  what  makes  necessary  the 
large  number  of  receiving  tellers,  the  many  bookkeepers,  etc., 
that  are  part  of  the  main  expense  of  a  bank  you  will  begin  to  get 
nearer  the  true  reason  for  the  cost  in  running  an  account.  It  is 
the  volume  of  work  that  is  being  transacted.  In  its  organization 
a  bank  equips  itself  for  a  certain  volume  of  work,  both  in  fur- 
niture, fixtures,  office  space  and  clerical  force.  After  a  time,  as 
the  volume  of  business  increases,  more  clerks  will  be  needed, 
more  fixtures  bought  and  the  possibility  of  enlarged  quarters 
begins  to  make  itself  felt. 

And  by  the  volume  we  can  not  mean  the  volume  in  dollars  and 
cents  but  must  mean  the  volume  in  physical  units  or  items  going 
through  the  bank.  There  is  no  more  work  in  handling  a  hun- 
dred dollar  check  than  in  handling  one  for  ten  dollars.  A  ten 
thousand  dollar  check  lists  as  quickly  on  an  adding  machine  as 
does  one  for  ten  dollars.  A  teller  can  check  up  or  prove  up  a  de- 
posit of  fifty  thousand  dollars  made  up  of  ten  checks  more  quickly 
than  he  can  a  deposit  of  fifty  dollars  made  up  of  twenty  checks. 
The  amount  of  physical  work  to  be  done  is  what  determines  the 
expense  for  fixtures,  machines,  clerk  hire  and  the  like.  As  the 
physical  work  increases  the  costs  go  up  because  the  payroll  is 
larger.  Furthermore,  this  physical  unit  also  controls,  to  a  very 
great  extent,  the  size  office  that  is  needed,  the  number  of  officers 
required  and  therefore  much  of  the  overhead. 

This  has  been  seen  and  understood  by  many  who  have  made 


182  THE  BANKER'S  CREDIT  AlANUAL 

a  study  of  bank  cost  accounting.  They  have  grasped  this  prin- 
ciple and  have  counted  the  number  of  checks  going  through 
the  bank  in  any  given  time  and  have  divided  the  estimated  daily 
expense  of  running  the  bank  by  the  average  number  of  checks 
handled  daily  to  establish  the  cost  of  handling  one  check.  By  this 
they  have  attempted  to  estimate  the  expense  connected  with 
running  a  checking  account  and  have,  in  a  small  degree,  ap- 
proached the  true  theory  of  cost  accounting  from  the  banking 
standpoint. 

What  makes  the  volume  of  checks  passing  through  a  bank  a 
good  basis  of  measure  is  the  fact  that  their  handling  requires  both 
clerks  and  space.  But  neither  the  space  nor  the  quality  or  char- 
acter of  the  clerks  is  uniform,  for  some  operations  need  more 
space  and  the  varying  salaries  makes  it  more  costly  in  some  hand- 
lings than  in  others.  The  variation  in  space,  however,  is  too  ir- 
regular to  allow  of  any  very  great  application  to  costs,  but  the 
variation  of  salaries  is  not  as  irregular  and,  after  all,  is  more 
essential,  as  increasing  volume  of  business  necessitates  increased 
clerical  force  far  more  quickly  and  directly  than  it  does  increased 
office  space.  For  this  reason,  and  because  it  has  been  found  sim- 
ple, the  clerk,  with  a  unit  scale  gradation,  has  been  used  to  good 
efifect  as  a  means  of  apportioning  cost.  It  is  easy  to  see  that, 
with  a  number  of  oi^erations  taking  about  the  same  time,  it  actu- 
ally costs  the  bank  twice  as  much  if  handled  by  a  one-hundred- 
doUar-a-month  clerk  than  if  handled  l)y  a  fifty-dollar-a-month 
clerk. 

COST  IN  PROPORTION  TO  SALARY  HANDLINGS 

It  is,  of  course,  possible  to  carry  this  scaling  down  to  a  minute 
scale,  but  from  the  standpoint  of  practical  efficiency  it  is  not 


A  CHECKING  ACCOUNT  183 

needed.  Too  much  detail  would  be  red  tape  and  red  tape  often 
costs  much  more  than  the  results  would  warrant,  so  that  the  sys- 
tem adds,  in  itself,  so  heavily  to  the  cost  as  to  be  exorbitantly 
expensive.  With  this  in  mind  the  following  scale  of  salaries  is 
suggested  as  being  a  reasonable  one  and  at  the  same  time  pre- 
senting sufficient  variation  to  cover  closely  enough  the  difference 
in  costs  as  between  types  or  classes  of  clerks.  As  a  matter  of 
phraseology  the  word  ''count"  is  used  in  this  discussion  to  de- 
note the  unit  basis  apportioned  according  to  the  scale. 

COUNT  SCALE 

One  handling  by  clerk,  salary  to  $25  per  month — 1  count 
One  hanclHng  by  clerk,  salary  $25  to  $50  per  month —  2  counts 
One  hanclhng  by  clerk,  salary  50  to  75  per  month —  3  counts 
One  handling  by  clerk,  salary  75  to  100  per  month —  4  counts 
One  handling  by  clerk,  salary  100  to  125  per  month —  5  counts 
One  handling  l)y  clerk,  salary  125  to  150  per  montli —  6  counts 
One  handling  l)y  clerk,  salary  150  to  175  per  month —  7  counts 
One  handling  by  clerk,  salary  175  to  200  per  month —  8  counts 
One  liandling  on  basis  of  salary  200  to  250  per  month —  9  counts 
One  handling  on  basis  of  salary  250  to  300  per  month — 10  counts 
One  handling  on  basis  of  salary  300  to  400  per  month — 11  counts 
One  handhng  on  basis  of  salary  400  to  500  per  month — 12  counts 
One  handling  on  basis  of  salary  500  to  1000  per  month — 13  counts 
One  handling  on  basis   of    salary   over   $1,000 — 14   counts 

The  next  problem  is  to  route  the  various  classes  of  checks 
from  the  time  tliey  come  in  by  mail  or  are  deposited  by  the  cus- 
tomer, until  they  have  passed  through  the  bank  and  are  no  longer 
a  cause  of  expense  through  operation.  At  each  step  or  handling 
a  notation  must  be  made  of  the  count  class  in  which  the  clerk 
handling  that  step  is  placed.  This  determines  the  counts  which 
the  operation  consumes.  An  addition  of  these  counts  will  tell 
the  total  number  of  counts  for  each  kind  of  check.  This  process 
can  be  continued  for  all  classes  of  checks  and  the  record  can  be 


184  THE  BANKER'S  CREDIT  MANUAL 

arranged  to  cover  every  kind  of  operation  in  the  bank's  activity. 
It  is  a  simple  matter  to  chart  this  condition,  and  the  diagram  on 
the  opposite  page  is  suggested  as  at  least  one  manner  of  doing 
this  in  a  concise  and  accurate  manner.  The  phraseolog}^  may 
differ  in  different  banks,  but  the  theory  remains  the  same  and  the 
wording  can  be  changed  to  agree  with  the  items  handled  or  the 
clerks  or  departments  handling  them.  This  in  no  ^vay  affects  the 
results,  as  the  system  is  thoroughly  elastic  and  can  be  molded  to 
fit  any  method  of  routing. 

THE  COUNT  SYSTEM 

An  explanation  of  the  chart  will  help  to  give  a  clearer  under- 
standing of  how  it  may  be  worked  out  so  as  to  get  a  fairly 
accurate  cost  for  each  kind  of  item  handled  in  the  routine  of 
bank  work.  Across  the  top  of  the  chart,  each  with  a  separate 
column,  are  the  names  of  the  types  of  clerks  that  make  up  the 
bank  staff.  Down  the  left  hand  side  of  the  chart  are  the  various 
items  that  go  through  a  bank.  Either  of  these  may  be  increased 
or  decreased  in  number  as  the  character  of  the  bank  and  its  busi- 
ness demand.  It  will  be  noted  that  each  square  formed  by  the 
clerk  and  check  type  column  is  divided  by  a  diagonal  line.  The 
upper  half  of  the  square  is  to  be  used  to  denote  the  actual  num- 
ber of  times  a  check  is  physically  handled  individually  by  any 
clerk  from  the  time  it  enters  the  1)ank  until  it  leaves.  The  lower 
half  of  the  square  is  to  record  the  number  of  counts  those 
handlings  represent.  First,  a  study  must  be  made  of  the  normal 
course  of  a  check  through  the  bank  because  we  must  base  our 
figuring  on  the  presumption  that  checks  will  take  a  normal  course 
most  of  the  time.  If  there  are  a  number  of  each  kind  of  clerks 
any  of  whom  may  handle  the  items,  then  their  average  salary 


185 


A  CHECKING  ACCOUNT  187 

should  be  used  to  determine  the  number  of  counts  such  handling 
will  generate.  After  the  routes  through  the  bank  have  been  de- 
termined, the  number  of  handlings  by  the  various  clerks  should 
be  entered  in  the  upper  half  of  the  squares.  Then,  in  conjunction 
with  ''The  Count  Scale"  and  the  average  salary  list,  the  number 
of  counts  for  each  clerk  for  each  type  of  check  should  be  entered 
in  the  lower  half  of  the  proper  square.  These  counts,  totaled, 
should  then  be  entered  in  the  column  designated  for  that  purpose. 
Arrangements  should  then  be  made  to  make  an  actual  count  of 
each  kind  of  item  handled  by  the  bank  for  a  week  or  for  two 
weeks  at  a  normal  time  of  the  month.  If  the  first  and  last  weeks 
of  the  month  are  taken  they  would  in  most  instances  come  close 
to  normal.  A  daily  average  for  each  kind  of  check  should  be 
struck  and  entered  in  the  column  reserved  for  that  purpose. 
Then  the  average  total  counts  for  the  bank's  daily  operation  is 
secured  by  multiplying  the  counts  per  type  of  item  by  the  average 
daily  number  of  items  in  each  case  and  adding  the  column. 
It  then  becomes  possible  by  dividing  the  total  of  the  cost  of  one 
day's  operation  by  the  total  number  of  counts  to  determine  the 
cost  of  operation  per  count.  This  cost  per  count  multiplied  by 
the  number  of  counts  for  any  item  will  give  the  operating  cost 
per  kind  of  item. 

This  system  differs  from  the  one  of  dividing  the  daily  total 
cost  of  doing  business  by  the  total  number  of  items  in  that  it 
loads  an  extra  cost  on  items  handled  more  frequently  or  by 
more  expensive  clerks.  It  takes  into  consideration  both  the  nec- 
essary extra  work  of  double  handlings  and  the  wage  scale,  and 
so  comes  nearer  to  the  actual  costs. 

The  normal  routing  of  cheeks  and  the  consequent  handlings  is 
a  thing  that,  once  traced,  need  not  l3e  retraced  as  long  as  the 


188  THE  BANKER'S  CREDIT  MANUAL 

system  within  the  bank  for  handling  its  work  remains  constantly 
the  same.  A  considerable  revamping  of  salaries  makes  it  neces- 
sary to  check  over  the  counts  assigned  to  any  handling.  But,  as 
this  salary  element  is  a  matter  of  averages,  it  is  a  question 
whether  this  element  is  subject  to  any  very  sudden  or  radical 
changes,  and  the  cost  figures  once  established  can  generally  be 
used  with  a  very  fair  degree  of  accuracy  for  at  least  a  year.  It 
may  be  well  to  make  a  recheck  on  the  number  of  items  handled 
by  taking  an  actual  count  for  a  day  or  two  at  bimonthly  periods 
and  so  obtain  an  average  number  of  items  handled.  This  does 
not  present  a  difficult  problem,  as  in  most  banks  there  are  lists 
in  the  various  departments  that  can  be  counted  very  rapidly  and 
with  sufficient  accuracy,  by  using  a  measure.  To  do  this,  make 
a  list  from  one  to  one  hundred  on  the  adding  machine  used  in 
that  particular  department,  and  by  measuring  this  against  the 
lists  a  total  can  be  ascertained  very  quickly. 

There  may  be  some  departments  that  create  expense  but  which 
are  not  directly  connected  with  the  checking  part  of  the  bank, 
such  as  the  lx)nd  department,  for  example.  This  makes  necessary 
a  division  rating  of  expense  so  as  to  get  the  daily  costs.  First,  all 
direct  exi:)ense  should  be  charged  against  the  departments  under 
examination  and  then  the  overhead  items  of  rent,  taxes,  light, 
officers'  salaries,  etc.,  should  be  equitably  divided  among  the  de- 
partments. This  may  be  done  in  several  ways.  Either  according 
to  the  space  occupied  by  departments,  the  proportion  of  the  direct 
expenses  charged  against  departments  or  some  such  prorating 
plan.   From  such  an  analysis  the  daily  cost  is  figured. 

After  the  cost  of  handling  any  item  has  been  determined  we 
have  come  to  a  point  where  we  can  figure  the  profit  on  an  account. 
It  is  necessary  to  count  the  various  types  of  items,  find  how  many 


ANALYSIS  OF  THE  ACCOUNT 

i  : 

owmo   its  valiiff  P-,   ralculated   for  the   Month   of 190 

tme 

Balance 

No.  Own          No. 
Checks     Clearincs 

Amount         k       No. 
OJd  Itenit      1     OJtIS 

Exchansrc 
ReceivcJ 

Amount 
N.  Y.  Items 

No. 

Cliicatfo  Ue:iis 

Chicago 

Amount 
Cajh 

NO. 
Crc.lits 

1 

1 

■  ' 

_ 

I  > 

_ 

■  • 

_ 

■  > 

_ 

1 

- 

■  ' 

_ 

■: 

- 

—      " 

- 

—         '2 

1 

_ 

_        t3 
14 
15 

- 

_        16 
_         17 

- 

_        IS 

_ 

_        '9 

^ 

_        20 

-. 

_        21 

_ 

_        22 

_ 

_        23 

«. 

_         24 

„ 

_       25 

_ 

_       26 

■_ 

_        27 

_ 

_       28 

' 

_ 

_       29 

_ 

_      30 

_ 

31 

Cica  Bil. 

(o.  2 

:,. 

Foi  driJi.  Bo'l 

- 

N.ID.). 

Kb.. 

estimated  Value  for  Year  based  on  ttiis  C 

Iculation 

Exlfniion. 
of  Balance 

Own  Ctiecks 

Net  Average  Balance  for  Year 

Clearing  House 



Interest  @                Jt  per  month  v iD»ei:mtni  / 

Odd  Items 

z 

- 

ExchaiiRe  Received  for  Month 
Charge  for  Banking  Privilege 

P„te. 

New  York  Itemi 
Chicago  Items 

~ 

_ 

Average  Gross  Worth  of  Account  for  Month 

Cash  Deposit 

_ 



Cost  of  Handling 

Credits 

_ 

_ 

Exchange  Cost 

Extensions 

_ 

Interest  Paid  on  Account             _ 

Total  Items 

Drafts  Bought 

Vloutli 

1  Cost  of  Handling  Items 

Net  Average  Balance 

Odd  Items  out  2  days 

Interest  @                %  per  month  I.  imenintnt  ^ 
Exchange  Received 



_ 

Charge  for  Banking  Privilege 
Gross  Worth  of  Account  for  Month 

Cost  of  Handling  Items 
Exchange  Cost 

I 

I 

Less  Total  Cost  and  Interest  Losses 

Interest  Paid  on  Account            fo 

Net  Worth  of  Account  for  Month 

Net  Loss  on  Account  for  Month 



Total  Cost 



_ 

_ 

— 

- 

1 

Size  of  original  8%  x  13 
The  broken  dashes  at  right  and  lefi  sides  indicate  the  horizontal  ruling 


189 


■ 


REMARKS: 

ill     B'xi'JSgk 

'Sir.^U 

cSf^'rj^^^rTiis 

i 

EXCHANGE      11      EXCHANGE 
CHARGED                    COST 

NO   or 

ITEM* 

TOTAL 
TRANSIT  ITEMS 

26 
27 
28 
29 
30 
31 
1 
2 
3 
4 
5 
6 

10 

11 

12 
13 
14 
15 

■ 

26 

27 

28 

29 

30 

31 

1 

2 

3 

4 

5 

6 

8' 
9 
10 
11 
12 
13 
14 
15 

- 

16 
17 
18 
19 

25 

16 
17 
18 
19 
20 
21 
22 
23 
2i 
25 

- 

TOTAL 

—    DAILY 
AVERAGE 

- 

COST 

INCOME 

Average 

Amount  in 

Tran.il. 

Exchange. 

— 

Le5,  10 

On  Reserve. 

Interest  Paid  at               .  % 
Interest  on  Loanable  Funds   i( 
Loaned  at                     Tf 

- 

Loanable  F«.d., 

No.  Item,  Handled, 
_          Co.t  of  Handling,  pe.  lie  m, 
_                                                 Total  Co« 

Cost  Handling  Items. 

~~ 

1 

Net  Worth  o(  Account. 
Net  Loss  of  Account 

- 

Size  of  original  8j4  x  13 
The  broken  dashes  at  right  and  left  sides  indicate  the  horizontal  ruling 

191 


A  CHECKING  ACCOUNT  193 

are  handled  in  a  given  time  and  determine  the  average  balance 
the  account  has  maintained  so  as  to  get  at  the  amount  of  loan- 
able funds  which  may  be  income  producing  and  from  which  the 
bank  gets  its  earnings.  This  information  can  best  be  accumu- 
lated by  use  of  a  proper  assembly  sheet,  of  which  the  insertions 
are  samples,  being,  however,  reduced  materially  in  size. 

By  accumulating  the  balance  records,  deductions  for  float  and 
the  like  on  this  kind  of  sheet  and  using  the  lower  part  of  the  form, 
it  is  possible  to  figure  the  profit  or  loss  on  an  account  quite  distinct 
from  the  loans  made  to  it,  and  thereby  form  an  intelligent  judg- 
ment as  to  the  value  of  the  account  and  the  desirability  of  extend- 
ing credit  to  hold  it  in  the  bank.  This,  of  course,  is  subsequent  to 
and  contingent  on  determining  whether  the  loan  would  be  safe 
from  a  credit  standpoint.  Variations  from  this  plan  are,  of  course, 
possible,  but  it  is  offered  as  an  aid  to  those  who  have  that  cus- 
tomer to  combat  who  thinks  borrowing  is  all  that  is  necessary 
to  the  bank's  health. 


CHAPTER  IX 

Commercial  Paper 

different  in  character  from  depositor  borrowings 

Some  of  the  mistakes  made  in  buying  commercial  paper  are, 
without  question,  clue  to  a  lack  of  a  full  understanding  of  what 
commercial  paper  is  and  some  of  the  basic  economic  laws  that 
apply  to  its  issue  and  the  necessity  of  its  being.'  Commercial  paper 
is  born  into  another  family  from  the  straight  note  that  is  dis- 
counted by  l)anks  of  deposit,  and  in  no  way  can  it  l^e  treated  as 
the  same  kind  of  risk. 

This  does  not  mean  that  such  a  note  is  any  less  desirable  or  any 
more  dangerous,  but  refers  to  the  difference  in  caution  that  must 
be  used  in  taking  into  the  bank's  portfolio  a  note  about  which  the 
credit  man  can  rarely  have  the  personal  contact  knowledge  that 
he  has  with  a  customer.  The  personal  equation  is  nil,  and  more 
reliance  must  be  placed  on  analysis  and  less  upon  the  process  so 
commonly  known  as  sizing  up.  Personality  almost  ceases  to  exist 
in  this  type  of  investment. 

Before  an  intelligent  consideration  of  any  question  can  be 
undertaken  it  is  necessary  to  establish  a  premise,  so  we  shall 
devote  some  space  to  a  discussion  of  the  character  of  commercial 
paper  before  taking  up  the  more  technical  question  of  buying  it 
for  bank  investment. 

CHARACTER    OF    COMMERCIAL    PAPER 

At  the  very  outset  we  are  confronted  with  the  fact  that  the 
term  commercial   paper   is   somewhat  of   a   misnomer.      In   its 

194 


COMMERCIAL  PAPER  195 

strictest  definition  the  word  commercial  means  ''pertaining '  to 
trade  or  commerce ;  mercantile."  By  this  definition  commercial 
paper  should  mean  the  paper  of  trade  or  commerce,  or  the  paper 
of  merchants.  Such  paper  would  be  the  notes,  drafts,  acceptances 
and  business  paper  of  merchants  issued  for  the  purpose  of  meet- 
ing commercial  debts  or  of  settling  mercantile  transactions.  For 
many  years  and  until  very  recently  the  volume  of  such  paper  is- 
sued by  houses  in  good  standing  has  been  limited,  at  least  for 
domestic  transactions. 

In  the  place  of  acceptances  and  such  forms  of  true  commercial 
paper  as  have  been  used  in  Europe,  this  country  has  developed 
a  system  of  selling  on  open  book  account,  as  between  merchants, 
and  bank  credit,  on  straight  paper  borrowing,  at  banks  of  deposit 
as  the  credit  medium.  This  has  been  accompanied  by  the  creation 
of  cash  discount  terms,  designed  to  further  prompt  payment, 
and  thereby  increasing  lx)rrowings  at  banks  of  deposit  in  or- 
der to  raise  the  necessary  funds  to  take  advantage  of  the  dis- 
count. This  system  allows  for  the  payment  of  the  whole  bill 
with  a  fairly  liberal  discount,  if  payment  is  made  within  a  short 
time,  generally  ten  days,  or  the  payment  of  the  face  of  the  or- 
der at  the  expiration  of  thirty  or  sixty  days.  Any  merchant 
who  is  in  good  standing  with  his  banker  borrows  direct  and  takes 
full  advantage  of  the  discount.  The  merchant  who  has  used  up 
his  bank  credit  .line  buys  on  net  thirty  or  sixty  day  terms  and 
loses  the  discount.  The  merchant  further  down  the  credit  scale, 
with  a  limited  capital  and  a  tight  credit  condition,  lets  the  ac- 
count run  to  maturity  and  then  may  pay  part  in  cash  and  offer 
notes  for  the  balance.  So  generally  is  this  issuing  of  notes  so 
based  that  to  the  active  credit  mind  notes  receivable  in  a  state- 
ment, lacking  a  close  explanation,  are  more  generally  than  not 


196  THE  BANKER'S  CREDIT  MANUAL 

looked  upon  as  being  more  than  likely  the  evidence  of  slow  or 
past  due  accounts.  Likewise  notes  payable  for  merchandise  in 
a  statement  create  at  least  a  mild  belief  that  the  subject  is  stand- 
ing off  his  creditors  beyond  the  usual  sales  terms  by  issuing 
notes  for  matured  accounts  which  he  is  not  able  to  pay  entirely  at 
the  time  of  maturity. 

This  development  has  brought  about  tw^o  conditions  of  interest. 
First,  the  commercial  note  has  largely  fallen  into  disrepute;  and 
second,  banks  of  deix)sit  (of  the  buyer)  have  been  called  upon  to 
finance  on  direct  paper  a  very  much  larger  percentage  of  credit 
operations  than  would  be  the  case  if  a  real  commercial  paper 
relationship  existed  between  seller  and  buyer.  In  this  case  the 
banker  of  the  seller  would  be  asked  to  extend  credit  on  the  com- 
mercial paper  of  the  buyer  endorsed  by  the  seller  and  credit 
would  be  based  on  the  two-name  paper  of  both  buyer  and  seller, 
a  paper  that  could  rightly  float  in  an  open  market.  This  latter 
condition  is  alx)ut  what  has  prevailed  in  Europe  with  the  addition 
of  central  discount  markets  where  this  paper  becomes  the  mer- 
chandise that  is  sold  by  banks  needing  funds  for  further  customer 
accommodation  and  is  bought  by  banks  having  surplus  funds  for 
investment.  The  European  method  based  on  real  commercial  pa- 
per floats  credit  from  the  congested  or  overloaned  sections  of  the 
country  to  such  parts  as  have  surplus  funds,  business  in  these  sec- 
tions being  temporarily  well  supplied.  Under  these  conditions 
the  shifting  of  credit  may  not  be  in  a  geographical  movement  at 
all.  It  is  quite  possible  for  a  bank  to  be  a  specialist  on  one  or 
two  lines  of  trade  where  credit  requirements  may  be  seasonal, 
leaving  the  bank  with  surplus  funds  at  some  times  and  very  tight 
at  others.  With  the  liquidness  of  credit  that  is  possible  through 
an  open  market  for  the  sale  of  commercial  paper  it  becomes  sim- 


COMMERCIAL  PAPER  197 

pie  to  adjust  loans  so  as  to  have  paper  maturing  at  a  time  the 
home  demand  springs  up.  This,  in  economic  theory,  is  the  ad- 
vantage of  the  use  of  commercial  paper  and  its  substitution  for 
an  open  account  carrying  system. 

ABSENCE  OF  GENERAL  OPEN   CREDIT  MARKET 

There,  has  been  no  open  market  for  the  purchase  and  sale  of 
commercial  paper  in  this,  country  probably  due,  from  an  economic 
standpoint,  to- the  fact  that  no  real  commercial  paper  has  existed. 
There  has  been,  however,  the  shifting  demands  for  credit  accom- 
modation and  the  usual  spotted  condition  of  the  credit  supply. 
Here  a  locality  with  banks  loaned  up  to  the  legal  limit ;  there  a 
place  in  which  banks  had  money  to  loan  or  credit  to  extend.  This 
condition  demanded  some  basic  economic  remedy  and  that  rem- 
edy has  been  found  in  the  so-called  commercial  paper  broker  and 
that  type  of  paper  which  we  are  in  the  habit  of  calling  commer- 
cial paper. 

Direct  banking  connections,  connected  with  credit  extensions, 
are  based  on  the  soundness  of  the  name  and  the  maintenance  of 
commensurate  balances.  It  at  once  becomes  obvious  that  there  is 
an  artificial  restriction  against  companies  finding  the  easy  money 
market  on  the  basis  of  maintaining  banking  relations  at  all  times. 
It  would  be  a  practical  impossibility  for  the  deposit  accounts  to  be 
so  scattered  that  loans  could  be  transferred  from  congested  to 
free  or  easy  markets  through  banks  of  deposit.  It  would  require 
too  many  accounts  and  too  much  money  tied  up  in  idle  balances. 
This  difference  in  money  markets  has  led  to  the  existence  of 
the  brokers  referred  to,  and  in  a  large  way  they  are  like  clear- 
ing houses  for  the  credit  of  the  country,  taking  notes  from  one 


198  THE  BANKER'S  CREDIT  MANUAL 

section  and  selling  them  in  another.  The  portfolios  of  the  lead- 
ing brokers  are  a  substitute,  after  a  fashion,  for  the  open  mar- 
ket of  Europe,  and  Hke  that  market,  have  a  tendency  to  equalize 
and  stabilize  credit  between  the  business  communities  of  the 
country. 

METHOD  OF  ISSUE 

We  have,  at  some  length,  discussed  the  reason  for  the  existence 
of  the  commercial  paper  broker  and  found  that  the  type  of  paper 
he  handles  comes  from  a  real  economic  need  and  is  based  upon 
sound  business  necessities.  The  next  step  is  to  understand  the 
method  under  which  this  paper  is  issued.  In  the  beginning  of 
this  kind  of  business  the  note  broker  was  far  from  the  high  type 
we  know  him  to  be  to-day.  He  was  a  man  who  took  few  risks ; 
sold  on  a  very  liberal  discount  basis,  wherever  he  could  find  a 
market,  and  in  many  cases  did  not  have  any  interest  in  the  note 
until  it  was  sold.  He  did  business  on  a  wide  margin  of  commis- 
sion and  at  no  time  took  any  risk,  as  the  maker  of  the  note  was 
not  paid  until  the  broker  had  placed  the  paper.  It  was  much 
more  like  a  note-shaving  proposition  than  a  strictly  clean-cut 
business  deal.  During  the  past  ten  or  twelve  years,  however, 
these  transactions  have  been  reduced  to  a  very  small  percentage 
when  compared  to  the  whole  amount  of  paper  so  floated.  Now, 
generally,  the  broker  actually  buys  the  paper,  paying  his  customer 
at  once  and  carrying  the  paper  himself  until  sold  to  some  bank 
or  possibly  some  commercial  investor.  The  relations  between 
the  best  brokers  and  their  clients  are  in  many  ways  very  similar 
to  the  relations  between  the  banker  and  his  customer  except  for 
the  deposit  requirement  or  custom.  This  condition  leads  to  a 
greater  conservatism  on  the  part  of  the  broker  in  buying  and 


COMMERCIAL  PAPER  199 

should  put  the  broker's  own  credit  department  more  closely  be- 
hind the  risk,  thereby  making  for  better  paper.  Indeed,  it  is  a 
good  rule  not  to  deal  through  houses  that  do  not  actually  own 
the  paper  they  are  selling. 

CHARACTER  OF  COMMERCIAL  PAPER  SELLER  IMPORTANT 

There  is  another  reason  why  the  character  of  the'house  selling 
the  paper  plays  an  important  part  in  the  soundness  of  the  paper 
sold.  When  a  company  makes  a  connection  with  a  brokerage 
house  it  is  extended  a  line  of  credit  by  that  broker,  which,  under 
certain  sound  regulations,  the  1)roker  will  float  for  the  company. 
If  the  broker  is  one  who  shops  for  rates  or  is  likely  to  be  too 
easily  frightened  in  troublesome  times  his  customers  are  apt  to 
be  suddenly  out  of  funds  l^y  unreasonable  withdrawal  of  lines 
of  credit.  The  fair  weather  banker  has  broken  many  companies 
that  could  have  been  pulled  through,  and  a  broker  with  a  chicken 
heart  can  wreak  havoc  on  a  business  that  needs  a  little  temporary 
assistance  in  times  of  stress. 

This  is  not  an  argument  for  the  broker  to  take  on  the  accounts 
of  companies  that  are  already  in  rough  water  but  is  directed 
against  such  brokers  as  refuse  to  aid  clients  w^hen  the  going  is  a 
bit  bad  or  who  rush  out  weak  paper  upon  the  ill-informed  banker 
only  that  they  may  l)e  rid  of  it  themselves  and  ignore  even  a 
moral  risk.  There  are  some  brokers  of  such  high  ethical  stand- 
ards that  they  would  rather  take  a  loss  themselves  than  know- 
ingly pass  sick  paper  on  to  their  buying  bank  customers.  There 
are  also  houses  that,  when  one  of  their  clients  turns  sick  or  pos- 
sibly looks  bad,  will  stand  by  and  keep  their  lines  open,  without, 
however,  putting  the  name  on  the  market.    Such  brokers  are 


200  THE  BANKER'S  CREDIT  MANUAL 

clean  productive  builders  of  business,  and  the  first  thing  to  be 
considered,  by  the  house  that  wishes  a  commercial  paper  broker 
connection  for  the  enlargement  of  its  credit,  as  well  as  by  the 
bank  that  buys  such  paper,  is  whether  or  not  the  broker  is  of  the 
right  stamp.  While  the  honesty  of  the  house  and  its  standing 
as  a  broker  will  not  stop  losses,  it  is  safe  to  assert  that  the  better 
the  broker,  the  higher  his  standing,  the  better  the  paper  sold  by 
him  will  average.  Therefore,  when  buying  paper,  the  very  first 
consideration  is  the  broker  himself  and  his  record  for  strength, 
fairness  and  business  honesty  and  ability. 

Having  established  in  his  own  mind  the  character  of  the  various 
brokers  and  having  selected  such  as  he  may  care  to  do  business 
with,  it  next  devolves  on  the  bank  credit  man  to  judge  the  risks 
involved  in  the  various  names  offered  to  him  by  the  broker. 
Too  many  credit  men  go  by  the  rule  of  two  for  one  and  never 
get  beyond  a  small  circle  surrounding  their  credit  desks.  The 
commercial  paper  risk  is  at  once  differentiated  from  the  custo- 
mer risk  because  in  most  instances  the  personal  element  is  almost 
entirely  lacking.  With  the  customer  the  credit  man  can  size  up 
the  personal  element,  the  plant  and  other  physical  aspects  of  the 
risk.  In  the  commercial  paper  field  he  has  to  rely  on  analysis  and 
such  second-hand  impressions  as  he  can  get  by  correspondence. 
This  adds  to  the  difficulty  of  the  task,  for  it  requires  closer 
analysis  and  deeper  thought. 

DIFFERENTIATION  OF  TYPES  OF  PAPER 

Roughly  speaking,  there  are  four  main  classes  of  business, 
manufacturer,  wholesaler,  jobber  and  retailer.  As  a  general 
proposition  the  nearer  inventory  is  to  the  absolute  raw  ma- 


COMMERCIAL  PAPER  201 

terial,  of  standard  size  and  fineness,  the  more  liquid  it  is  and 
hence  the  more  advantageous  as  an  asset.  As  the  manufac- 
turer deals  first  with  the  raw  material  it  might  seem  that  he  would 
l3e  the  more  favored  risk.  His  receivables  are  more  generally 
limited  to  a  comparatively  few  customers,  generally  quite  re- 
sponsible wholesalers,  and  on  that  account  should  be  very  liquid. 
He  is  generally,  however,  burdened  with  a  heavy  plant  invest- 
ment. 

The  wholesaler  also  sells  to  a  comparatively  limited  number  of 
customers,  thereby  keeping  his  receivables  in  a  good  state  of 
liquidness,  but  he  is  a  step  removed  from  the  raw  material.  The 
jobber  begins  to  branch  out  and  carries  a  greater  variety  of  lines 
of  merchandise  and  a  larger  number  of  smaller  accounts.  He  is 
also  two  steps  from  raw  material.  The  retailer  carries  a  very 
wide  line  of  merchandise,  far  removed  from  the  raw  material, 
and  in  the  modern  development  of  cash  business  has  relatively 
only  a  limited  amount  of  receivables,  which,  as  a  rule,  liquidate 
with  the  highest  ratio  of  return  in  case  of  failure.  His  stock  is 
also  likely  to  accumulate  a  larger  proportion  of  out  season  ma- 
terial. In  the  process  of  grading  types  the  retailer  would,  by 
the  nature  of  his  business,  be  placed  at  the  foot  of  the  credit 
scale,  the  jobber  next  above  him,  the  manufacturer,  whose  in- 
ventory shows  a  large  proportion  of  semi-manufactured  stock 
and  little  raw  material,  just  ahead  of  the  jobber,  the  wholesaler 
ahead  of  this  kind  of  manufacturer  and  the  manufacturer  with 
a  small  list  of  customers  and  a  short  bridge  between  raw  material 
and  sales  at  the  top  of  the  list. 

It  may  be  that  others  will  disagree  with  this  general  grading, 
and  it  is  certain  that  it  is  but  a  crude  attempt.  It  is,  however,  a 
valuable  thought  to  keep  in  mind,  particularly  if  the  proportion 


202  THE  BANKER'S  CREDIT  MANUAL 

of  manufactured  or  in  process  merchandise  gets  too  large,  when 
taken  in  ratio  analysis  with  the  other  current  assets.  One  fairly 
good  rule  or  measure  is  to  compare  the  total  of  the  cash  and 
receivables  to  the  total  current  debt.  If  it  is  equal  in  amount 
and  the  merchandise  is  left  free  and  clear  for  liquidating  shrink- 
age and  if  merchandise  is  largely  raw  material  then  the  name 
begins  to  approach  the  best  proportions. 

UNDER  OPTION 

The  commercial  paper  broker  calls  on  the  bank  with  a  list 
of  offerings  and  presents  the  figures  of  the  last  statement  for 
consideration.  A  cursory  reading  of  the  statement,  bearing  in 
mind  such  things  as  debt  percentage  and  current  ratio  averages 
as  discussed  in  the  chapter  on  type  analysis,  will  make  it  possible 
for  the  bank  credit  man  to  determine  whether  or  not  the  name  is 
at  all  possible  or  whether  it  is  entirely  out  of  the  class  of  paper 
he  desires  to  buy.  Having  decided  that  the  name  has  possibilities 
the  credit  man  may  take  under  option  an  amount  regulated  by 
the  policy  of  his  bank.  If  the  name  is  new,  or  is  one  that  his 
bank  has  not  considered  for  some  years,  then  he  should  ask  for 
the  statements  for  the  past  two  years,  or  in  some  instances  three 
years.  He  should  get  all  the  supplemental  information  the  broker 
may  have  and  should  insist  on  the  sales  for  both  years  of  the 
statements  under  consideration.  These  sales  are  of  the  utmost 
importance,  even  more  so  in  commercial  paj^er  than  in  customer 
paper,  because  more  reliance  has  to  be  placed  on  analysis  and 
because  a  knowledge  of  sales  volume  is  absolutely  necessary  for 
a  true  understanding  of  any  statement.  The  bank  credit  man 
is  in  a  stronger  position  to  demand  information  from  a  commer- 


COMMERCIAL  PAPER  203 

cial  paper  name  than  he  is  from  a  customer  name  because  there 
is  no  possible  loss  of  deposits  connected  with  a  refusal  to  buy 
the  paper  of  a  commercial  paper  name.  Therefore  he  can  pick 
and  choose  more  carefully,  buying  such  names  as  he  can  get  the 
necessary  information  about  and  optioning  such  as  he  feels  do 
not  quite  come  through  clean, 

CREDIT  DEPARTMENT  RECORD  OF  PURCHASES 

The  statements  should  be  subjected  to  a  searching  compara- 
tive, internal  and  type  analysis  and  the  records  spread  on  such 
a  form  as  will  make  it  possible  to  compare  at  a  glance  the  rela- 
tive changes  from  year  to  year.  This  record  should  be  so  de- 
signed as  to  carry  all  the  necessary  information  concerning  the 
amount  of  the  purchase,  the  date  of  the  purchase,  the  rate,  the 
maturity,  a  synopsis  of  opinions  obtained  and  any  security,  en- 
dorsement or  guaranty  that  supports  the  goodness  of  the  note. 
Then,  if  more  than  one  officer  has  to  pass  upon  the  paper,  space 
should  be  left  for  initialing  the  purchase  so  that  at  any  future 
time  there  can  be  no  doubt  as  to  the  responsibility  for  the  pur- 
chase. The  form  on  page  205,  used  as  a  card  file,  indicates  how^ 
this  may  be  done  easily  and  compactly. 

INQUIRY  LETTERS 

The  analysis  of  the  statement  being  made,  the  credit  man 
should  address  himself  to  the  task  of  securing  the  indirect  in- 
formation concerning  the  moral  risk  and  general  condition  of 
the  name.  For  this  he  must  rely  upon  the  opinions  of  his  brother 
credit  men,  who  are  located  within  observation  distance  of  the 
plant,  who  may  know  the  management  or  who  have  an  account 


204  THE  BANKER'S  CREDIT  MANUAL 

that  brings  them  in  close  touch  with  the  situation.  In  this,  ac- 
quaintance and  friendship  play  a  large  part,  and  the  credit  man 
who  makes  a  recluse  of  himself  loses  power.  The  character  of  a 
letter  has  a  marked  effect  upon  the  recipient  and  on  that  account 
a  good  letter  should  be  designed.  It  is  a  rather  common  custom 
to  use  a  form  letter,  and  as  bank  credit  men  are  fairly  liberal- 
minded  with  each  other,  a  form  letter  is  accepted  as  a  labor-  and 
time-saving  device.  The  following  are  several  specimens  of  let- 
ters that  have  been  used  with  success : 

"We  have  purchased,  under  the  usual  option  of  the  broker, 
some  of  the  paper  of .,  and,  as  we  understand  an  ac- 
count is  maintained  with  your  good  selves,  we  would  very  much 
appreciate  an  expression  of  your  opinion  as  to  the  desirability  of 
the  risk  for  an  outside  bank  at  this  time,  together  with  some  in- 
formation as  to  your  experience  with  the  business,  relative  to 
the  nature  and  extent  of  accommodation  at  the  disposal  of  the 
concern  through  your  facilities  and  the  manner  in  which  obliga- 
tions are  cared  for. 

''Some  idea  as  to  the  conditions  under  which  the  business  is  op- 
erating at  present  will  also  be  of  value.  Thanking  you  for  your 
courtesy  in  the  matter,  I  am, 

"Very  truly  yours," 


"We  shall  greatly  appreciate  your  confidential  opinion  as  to  the 
financial  responsibility,  general  standing,  and  character  of  man- 
agement of ,  with  particular  reference  to  the  desira- 
bility of  the  company's  paper  as  a  safe  and  attractive  outside  in- 
vestment. If  endorsements  are  furnished,  such  information  as 
you  may  have  at  hand  covering  the  outside  means  of  the  en- 
dorsers or  guarantors  will  be  of  value. 

"Thanking  you  for  your  courtesy  in  the  matter,  and  assuring 
you  of  our  willingness  to  reciprocate  at  any  time,  I  am, 

"Very  truly  yours," 


"We  have  to-day  purchased,  under  the  usual  option,  paper  of 
the  above  concerns,  and  would  appreciate  receiving  the  benefit  of 
what  information  you  may  have  in  your  files  relative  to  their 


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COMMERCIAL  PAPER  207 

fpresent  financial  responsibility  and  method  of  meeting  their  obli- 
gations.   We  would  also  be  glad  to  have  you  advise  us  if,  in  your 
opinion,  they  are  under  capal)le  management,  and  whether  or  not 
you  would  consider  their  paper  a  first-class  banking  risk. 

''Assuring  you  that  your  kindness  in  this  matter  w^ill  be  greatly 
appreciated,  and  trusting  that  you  will  not  hesitate  to  call  upon 
us  when  occasion  arises,  we  are, 

*A^ery  truly  yours," 


"Will  you  kindly  favor  us  in  confidence-  with  your  opinion  of 
the  present  financial  condition,  management  and  business  pros- 
pects of ?   Would  you  consider  a  reasonable  line  of 

their  paper  a  safe  and  desirable  investment? 

''Thanking  you  in  anticipation,  and  desiring  to  reciprocate 
whenever  opportunity  offers.  Very  truly  yours," 


"Will  you  kindly  favor  us  wnth  your  opinion  regarding  the 
character,  standing  and  financial  responsibility  of  ? 

"Would  you  regard  a  line  of  their  paper  for  $ to 

$ a  desirable  investment  ? 

"If,  to  your  knowledge,  they  borrow  on  collateral,  endorse- 
ments or  guarantee,  please  advise  us. 

"Assuring  you  that  any  information  you  may  give  us  along  the 
lines  indicated  above  will  be  much  appreciated  and  used  dis- 
creetly, we  are,  Yours  very  truly," 


These  are  actual  letters  and  are  good.  The  writer  has  only 
one  thing  to  offer  as  an  addition,  and  that  is  the  insertion  of  a 
foot-note  to  the  effect  that  if  the  bank  inquired  of  contemplates 
at  any  time  the  purchase  of  the  same  name  that  the  inquiring 
bank  will  be  glad  to  give  the  benefit  of  its  investigation  and  the 
result  of  its  analysis. 

When  a  name  has  at  any  time  been  purchased  and  is  being 
considered  again  the  following,  that  have  been  in  actual  use,  are 
submitted  as  good  types  of  letters : 

"We  are  revising  our  files  on  the  above  concern,  and  would 
appreciate  receiving  as  full  information  as  you  may  have  relative 


208  THE  BANKER'S  CREDIT  MANUAL 

to  its  financial  and  business  standing.  We  would  also  be  pleased 
to  have  you  state  whether  or  not  its  bills  are  discounted,  and  if, 
in  your  opinion,  it  is  making  satisfactory  progress. 

"Thanking  you  in  anticipation  of  your  courtesy,  and  assuring 
you  of  our  willingness  to  reciprocate,  we  are, 

**Very  truly  yours," 


''We  are  revising  our  files  and  would  appreciate  your  advising 

us  if  you  have  had  occasion  to  change  your  opinion  of 

as  expressed  in  your  favor  to  us  under  date  of . 

"Thanking  you  in  anticipation,  and  assuring  you  of  our  will- 
ingness to  reciprocate  whenever  opportunity  offers, 

"Very  truly  yours," 


FILE  REVISION  ABUSES 

Before  leaving  the  matter  of  file  revision  the  writer  can  not 
help  but  expostulate  against  unnecessary  revision.  There  are 
some  bank  credit  men  whose  sole  object  in  life  seems  to  be  to 
build  up  a  huge  file,  based  on  endless  and  frequently  recurring 
inquiries,  without  reference  to  the  name  being  actively  in  the 
market.  Bringing  a  file  up  to  date  should  only  accompany  an 
honestly  expected  purchase.  Keeping  files  up  to  date  on  names 
that  are  not  in  the  market  or  on  those  one  has  no  intention  of 
buying,  simply  gets  a  man  rated  as  a  public  nuisance  and  ends  in 
his  letters  receiving  scant  courtesy,  thus  practically  closing  a 
most  excellent  source  of  information,  perhaps  at  a  time  when 
it  is  really  needed.  Revise  when  you  are  actually  contemplating 
purchase,  and  do  not  write  every  bank  in  the  city  in  which  the 
name  is  located. 

The  most  practical  method  is  to  pick  out  a  small  number  of 
banks  that,  for  some  reason  or  other,  are  believed  to  have  knowl- 
edge of  a  name  and  write  to  them.    It  is  a  wise  thing  to  state  that 


COMMERCIAL  PAPER  209 

you  are  writing  other  banks  in  the  same  city,  if  this  is  the  case. 
The  recipient  bank  will  give  letters  more  attention  if  it  knows 
that  its  efforts  are  being  relied  upon. 

TERRITORIAL   ECONOMIC    CONDITION 

The  statement,  the  inquiry  and  the  broker's  information  give 
the  greatest  amount  of  direct  information.  There  is,  however, 
another  very  important  consideration  and  this  is  the  economic 
condition  of  the  section  of  the  country  in  which  the  name  origi- 
nates. There  are  at  times  broad  stretches  of  territory  that  suffer 
from  crop  failure,  labor  troubles  or  some  economic  disturbance 
that  upsets  business  within  that  territory.  Eor  this  reason  the 
bank  credit  man,  who  buys  commercial  paper,  must  study  eco- 
nomic geography  and  know  to  a  certainty  the  conditions  that 
prevail  in  various  parts  of  the  country.  If  any  section  in  which 
the  buying  public  is  largely  rural  is  affected  with  a  serious  crop 
failure  it  is  a  certainty  that  the  sales  of  merchandise  in  that  com- 
munity are  going  to  fall  off.  This  loss  of  sales  is  reflected  in  the 
financial  conditions  of  the  merchants  and  if  the  unfavorable  con- 
dition is  long  protracted  it  is  assured  that  the  paper  coming  from 
that  section  will  not  be  as  desirable  as  paper  originating  in  some 
more  prosperous  part  of  the  country. 

As  has  been  said,  crop  conditions  or  some  other  local  cause  may 
turn  a  whole  geographic  section  into  a  questionable  commercial 
paper  risk.  It  is  also  true  that  unsettled  conditions  may  prevail 
in  one  line  of  industry  on  account  of  raw  material  shortages  or 
some  such  cause.  This  makes  it  necessary  for  the  credit  man  to 
watch  closely  his  type  studies  so  that  he  may  check  from  year  to 
year  on  the  condition  of  an  entire  industry.  Trade  journals  help 
in  this  connection  and  a  free  interchange  between  credit  men  is 


210  THE  BANKER'S  CREDIT  MANUAL 

another  aid  in  finding  out  the  true  condition  of  affairs.  This  is 
not  always  easy,  however,  to  determine,  and  the  credit  man  should 
always  look  most  carefully  for  traces  of  territorial  or  trade 
depressions  or  undue  expansion  with  consequent  weaknesses. 
Eternal  watchfulness  is  the  only  guardian  against  these  troubles. 

COOPERATION HOW  TO  GET  IT 

In  commercial  paper  buying  the  bank  credit  man  is  more  de- 
pendent upon  indirect  information  than  in  his  direct  loans.  This 
makes  the  cooperative  good  will  of  his  brother  credit  men  of  the 
utmost  value.  To  secure  this  there  are  two  prime  rules.  The  first 
is  to  display  a  spirit  of  willingness  to  cooi:>erate  oneself.  Do  not 
turn  credit  inquiries,  real  credit  inquiries,  aside  with  a  stereotyped 
letter.  The  second  is  to  eliminate  the  dragnet  inquiry  method 
from  your  system.  Remember,  other  credit  men  are  often  busy, 
even  if  you  are  not,  and  the  quality  of  your  credit  file  is  more 
important  than  its  size.  Inquire  when  you  have  need  to  inquire, 
but  do  not  inquire  just  to  give  your  stenographer  something  to  do 
and  to  increase  the  size  of  an  already  unused  credit  file.  Send 
inquiries  to  those  only  who  you  believe,  for  some  good  reason, 
have  the  real  information  you  need.  If  you  must  write  to  every 
bank  in  the  section,  at  least  have  the  courtesy  to  add  a  note  to 
your  inquiry  stating  that  you  are  writing  to  other  banks  and  that 
information  on  file  will  be  sufficient  without  further  effort  on 
the  part  of  the  bank  inquired  from.  This  spirit  of  thought  fulness 
and  courtesy  will  breed  cooperation,  the  greatest  department 
asset  any  bank  credit  man  can  secure. 


CHAPTER  X 
The  Interview  and  Visit  to  Plant 

THE  fraudulent  STATEMENT 

In  considering  the  sources  of  credit  information  the  statement, 
if  properly  and  thoroughly  analyzed,  was  given  first  place.  This 
was  done  because  it  is  supposed  to  show  an  actual  picture  of  the 
real  condition  of  the  subject's  business.  Another  reason  is  be- 
cause, if  incorrectly  given  with  an  intent  to  defraud,  and  credit 
extended  because  of  it,  it  becomes  an  instrument  through  which 
the  fraudulent  debtor  may  be  prosecuted  and  sent  to  jail.  In  this 
latter  connection  it  may  be  well  to  note  that  where  the  false  state- 
ment act  of  any  state  may  be  weak  and  ineffective,  action  can  be 
had  under  federal  law  if  it  can  be  proved  that  the  statement  was 
sent  through  the  mail,  thereby  using  the  mails  for  the  purpose  of 
perpetrating  fraud.  There  are  a  number  of  statement  forms 
so  designed  that  when  proi3erly  folded  they  make  a  mailable 
form.  In  this  manner  they  retain  the  stamp,  cancellation  marks, 
address  and  such  evidence  that  will  prove  beyond  question  that 
they  have  passed  through  the  mails.  In  many  instances,  how- 
ever, this  form  of  statement  is  not  adaptable  to  the  system  in  use 
and  so  can  not  very  easily  be  adopted.  Office  custom,  however, 
can  be  made  a  substitute  if  well  designed  and  strictly  adhered  to. 
One  method  that  is  inexpensive  and  not  too  cumbersome'  is  to 
have  the  return  envelopes  distinctly  marked  so  that  they  will 
only  l:>e  opened  by  some  one  in  the  credit  department.     When 

211 


212  THE  BANKER'S  CREDIT  MANUAL 


opening  the  envelope  it  should  be  slit  across  the  top  and  down 
both  ends  so  that  it  can  be  spread  out  flat.  A  notation  should 
then  be  made  immediately  upon  it  to  the  effect  that  it  had  been 
received  in  the  credit  department  on  a  certain  date,  that  it  con- 
tained the  statement  of  the  subject  dated  as  per  the  statement 
date,  and  the  notation  should  be  signed  or  initialed  by  the  person 
actually  performing  the  act  of  opening  and  registering  the  state- 
ment. The  envelope  so  marked  should  then  be  permanently 
pasted  to  the  statement  so  that  they  become  in  fact  one  instru- 
ment. If,  in  addition  to  this,  the  statement  is  registered  on  one 
of  the  statement  tickler  cards,  formerly  mentioned,  and  the  fact 
of  such  registration  is  noted  on  the  margin  of  the  statement, 
the  record  is  so  complete  as  to  be  good  evidence  in  court  that 
the  statement  was  actually  received  through  the  mail  by  the  bank 
and  used  in  the  credit  department  as  a  basis  for  credit  standing. 
If  made  a  regular  order  of  department  routine  this  is  not  a  bur- 
densome matter  and  makes  a  very  distinct  claim  of  evidence.  The 
form  on  the  opposite  page  shows  the  type  of  envelope  that  can  be 
used,  so  marked  that  any  clerk  in  the  mail  department  can  tell  at 
a  glance  that  the  contents  are  of  more  than  ordinary  importance 
and  that  the  envelope  is  to  go  to  the  credit  department  in  the 
shape  and  condition  in  which  it  is  received  by  the  bank.  The 
notation  referring  the  envelope  to  the  credit  department  is  printed 
on  both  back  and  front  and  is  in  either  heavy  red  or  green  to 
make  it  more  noticeable.  It  also  serves  to  assure  the  customer 
that  the  information  given  is  to  be  safeguarded  by  the  credit  de- 
partment and  that  the  envelope  is  not  likely  to  be  opened  by  any 
other  department  of  the  bank  or  by  more  or  less  irresponsible 
boys  in  a  general  mailing  room. 


m 


214  THE  BANKER'S  CREDIT  MANUAL 

QUESTIONS   SUPPLEMENT   ASSET   AND   LIABILITY    STATEMENT 

Statement  forms,  as  has  already  been  seen,  contain  a  very 
large  number  of  questions  in  addition  to  the  actual  balance  sheet. 
In  some  cases  these  questions  are  answered  in  good  form,  but  in 
many  they  are  only  carelessly  answered  or  the  answers  may  often 
be  omitted  entirely.  In  such  a  case  an  interview  may  rightfully 
l)e  insisted  upon  and  in  any  event  an  interview  is  of  great  benefit, 
as  it  brings  the  borrower  and  the  credit  man  of  the  bank  much 
more  closely  in  touch  and  often  makes  clear  many  things  that 
otherwise  might  be  only  imperfectly  understood.  Some  credit 
men  possess  most  excellent  memories  and  rely  upon  them  to  a 
very  great  extent  to  retain  the  results  of  these  interviews.  Some- 
times they  later  transcribe  their  impressions  in  record  files,  bur, 
too  often,  the  credit  man  who  rehes  upon  memory  does  not 
transcribe  and  so  creates  a  credit  file  in  his  head  to  which  he 
only  has  access  and  which  the  bank  will  lose  in  the  event  of  his 
death  or  resignation.  It  is  also  true  that  time  will  dim  even  the 
best  memory  and  that  facts  may  become  confused  with  impres- 
sions and  a  false  mental  record  grow  up  which  will  lead  to  mis- 
takes and  misunderstanding.  To  obviate  this  condition  it  is  a 
simple  matter  to  construct  a  questionnaire  or  record  sheet  that 
can  be  handled  during  the  interview  and  notations  made  thereon 
which  the  stenographer  can  later  condense  into  a  terse  report 
for  filing  purposes.  The  original  of  the  record  may  itself  be 
filed  in  the  information  folder  if  that  is  deemed  best,  but  as 
many  of  the  notations  on  the  interview  sheet  and  the  statement 
form  are  the  same,  valuable  space  may  l>e  saved  by  transcription 
of  the  notations  in  report  form  and  the  filing  of  the  questionnaire 


THE  INTERVIEW  AND  VISIT  TO  PLANT      215 

in  transfer  files  under  a  numeral  system  that  can  be  packed  much 
more  tightly  than  the  files  in  daily  use. 

While  the  actual  questions  to  be  asked  will  necessarily  vary, 
with  the  varying  demands  of  different  departments  of  different 
banks,  it  is  still  possible  to  consider  the  use  of  a  certain  number 
of  more  or  less  standard  points  of  information  that  the  credit  man 
should  have  access  to  and  should  receive.  Some  of  these  will  be 
duplicates  of  the  questions  on  the  statements.  These  can  be 
checked  before  the  interview  to  indicate  whether  they  have  been 
fully  answered  or  whether  more  explanation  is  needed.  With 
such  a  questionnaire  on  his  desk,  prepared  in  advance,  the  credit 
man  is  not  likely  to  overlook  any  important  matter  that  was  not 
clear  upon  the  statement  and  can  conduct  the  interview  in  less 
time  and  in  a  more  orderly  manner  than  by  the  hit  and  miss 
method  of  general  conversation.  It  also  tends  to  calm  a  nervous 
or  touchy  customer.  This  questionnaire  may  be  printed  or  a 
special  form  may  be  made  for  each  case  by  the  stenographer. 
If  made  the  latter  way  the  questions  that  have  been  satisfactorily 
answered  may  be  omitted  and  the  form  shortened. 

INTERVIEW   QUESTIONNAIRE 

The  following  is  offered  as  suggestive  material  for  such  a 
questionnaire : 

QUESTIONNAIRE 

Name Date  interviewed 

Representative Statement  of Date 

Sales 

Profits 

Dividends 

Contingent  liability 

Where  incorporated   


216  THE  BANKER'S  CREDIT  MANUAL 


Have  we  on  file  a  resolution  stating  who  must  sign  notes  ?...... 

\\'hat  are  outside  means  of  endorsers  or  guarantors? 

What  is  amount  or  extent  of  insurance  ? 

Fire  $ Accident  $ 

Use  and  occupancy  $ Credit  $ 

Explosion  $ Bomb  $ 

Life  $ payable  -to  subject  company 

Bad  debts  charged  off  $ 

Accounts  past  due  more  than  six  months  $ 

Depreciation,  machinery,  $ Buildings  $ 

Reserve  for  bad  debts  $ .  . 

Reserve  for  possible  merchandise  depreciation  $ 

Repossession  loss  reserve  $ 

Mortgage  delDt  or  bonds  when  due  $ Due 

Is  mortgage  or  bond  debt  a  l)lanket  liability  ? 

Is  the  statement  the  result  of  a  certified  audit? 

Is  paper  sold  by  brokers  ? Who  ? 

What  line  is  extended  by  brokers  ? 

Was  this  completely  retired  during  year  ? When  ? 

How  long  have  officers  or  partners  been  in  this  line? 

Is  there  some  provision  made  for  filling  their  places  in  case  of 
death  or  resignation  ?   

What  are  sales  terms  ? 

Do- you  insist  on  customers  living  up  to  their  terms? 

What  percentage  of  sales  has  to  be  repossessed? ! 

Have  any  accounts  or  notes  receivable  been  pledged,  sold  or  re- 
discounted  ? 

What  percentage  of  notes  receivable  represent  matured  accounts 
extended  by  note  payment  ? 

Was  inventory  taken  by  accountants  or  verified  by  them? 

Is  any  part  of  the  merchandise  on  consignment? 

What  offsetting  debit  appears  against  such  condition? 

What  does  money  deposited  with  company  represent? 

Is  it  a  demand  liability  ? 

What  interest  is  paid  thereon? 

Is  any  part  of  capital  stock  represented  by  notes  or  accounts  re- 
ceivable ? 


THE  INTERVIEW  AND  VISIT  TO  PLANT      217 

How  was  paid  in  capital  paid  for  ? ' 

Cash  $ Real  estate  $ 

Machinery  $ Patents  $ 

Buildings  $ Promotion  $ 

Otherwise  by $ 

What  does  receivables  due  from  officers  or  partners  represent? 
Is  any  part  of  the  receivables  owing  from  subsidiary  or  allied 


companies  ? 


What  other  bank  accounts  are  there  ? 

Are  any  of  these  secured  in  any  way  when  making  loans? 

Is  the  company  obligated  in  any  way  for  debts  of  subsidiary  or 
allied  companies  ? 

How  are  sales  running  as  compared  to  last  year? 

Are  collections  good  or  do  slow  accounts  run  in  greater  propor- 
tions than  last  year  as  compared  to  sales  ? 

What  additions  are  contemplated  this  year? 

If  selling  nationally,  are  there  any  bad  collection  spots? 

General  remarks  and  memoranda : 


COMMERCIAL   PAPER  QUESTIONNAIRE 

When  buying  commercial  paper  there  are  also  many  points  that 
can  be  covered  in  a  questionnaire,  of  which  the  following  is  an 
example : 

Date 

To 


Gentlemen  : 

In  connection  with  the  purchase  from  you,  under  option,  of 

note  of we  would  ask  you  to  furnish 

us  the  following  information  applying  to  the  company's  state- 
ment as  of 


218  THE  BANKER'S  CREDIT  MANUAL 

(1)  a.  Are  any  quick  assets  (merchandise,  accounts  receivable) 

pledged  ? 

b.  li  accounts  receivaljle  and  notes  receivable  are  not  sep- 
arate, what  is  the  amount  of  each,  and  how  much  of 
each  item  represents  actual  merchandise  sales,  how 
much  due  from  allied  companies  and  what  is  due  from 

officers,   employees,  etc.  ? 

Accounts   receivable $ 

Due  from  customers $ 

Due  from  allied  companies ......   $ 

Due  from  officers,  employees,  etc. .    $ 

Notes  receivable    $ 

Due  from  customers $ 

Due  from  allied  companies $.  .  . 

Due  from  officers,  employees,  etc. .    $ 

(2)  State  amount  and  nature  of  contingent  liability  at  date  of 

said  statement   

(3)  a.  Were   any  obligations   secured   otherwise  than  as   pro- 

vided in  question  No.  1  ? 


b.  Financial  worth,  outside  of  this  business,  of  endorsers, 
as  follows : 

Name $ 

Name    $ 

Name    . $ 

Name    $ 

(4)    Life  and  other  insurance  carried  payable  to  the  business?.  . 

.  -  .  Bad  Debts 

(  0 )  Year  Annual  Sales  Net  Profits  Dividend  Paid  Charged  Off 

Three  Years  Three  Years  Three  Years  Three  Years 

$ $ $ $ 

$ $ $ $ 

$ $ $ $ 

$ $ ;.  $........     $ 

(6)  Amount  of  bills  and  accounts  receivable  ninety  days  over- 

due on  said  statement   

(7)  a.  Minimum  liabilities  during  past  twelve  months  as  on.  .  .  . 

...: $ 

b.  Maximum  liabilities  during  past  twelve  months  as  on ...  . 
$ 


THE  INTKRVIEW  AND  VISIT  TO  PLANT      219 


( 8 )    With  what  other  businesses  are  officers  connected  ? 


(9)  a.   Names  of  all  bank  accounts  with  amount  of  each  line  of 

credit  estabhshed : 

$ $ 

$...• $ 

$ $ 

b.  What  brokers  handle  paper  ? 

(10)  What   amount   was   borrowed   at   statement   time    from 

banks  ?   

From  brokers?    

(11)  If  statement  was  audited,  was  it  an  actual  itemized  audit 

of  books  or  merely  a  verification  of  balance  sheet?  .  . 


Name  of  accountants? 


This  form  calls  for  many  bits  of  information  that  are  not  al- 
ways given.  Much  of  this  is  not  the  fault  of  the  broker,  l^ecause 
if  he  is  the  proper  kind  of  broker,  actually  buying  the  paper  and 
owning  it,  he  too  has  had  to  assume  a  credit  risk  and  is  quite 
c'ls  interested  in  knowing  the  true  status  as  is  the  bank  itself. 
Some  companies  that  borrow  through  commercial  paper  channels 
are  not  as  frank  as  they  should  be  and  it  is  only  by  continued 
insistence  that  brokers  and  banks  can  get  the  full  information 
they  are  entitled  to.     * 

In  this  connection  bank  men  would  get  further  by  cooperating 
with  brokers  than  by  antagonizing  them,  and  by  writing  such  in- 
quiries to  the  brokers  as  they  may  show  to  their  clients  for  the 
purpose  of  getting  more  information. 

VISITING  THE   PLANT 


With  the  completion  of  the  statement  analysis  and  the  inter- 
view the  credit  man  has  passed  through  two-thirds  of  the  direct 
information  process.     The  last  step  is  really  most  important. 


m 


220  THE  BANKER'S  CREDIT  MANUAL 


This  is  a  visit  to  the  plant  itself  and  an  actual  examination  of  the 
fixed  or  capital  assets.  The  value  of  this  sort  of  inspection  is 
getting  better  and  better  known  and  more  appreciated  every  day. 
In  the  older  methods  of  credit  investigation  the  statement  was 
analyzed  along  the  lines  of  current  assets  and  liabilities  arid  no 
thought,  or  at  the  l^est  very  little  consideration,  was  given  to 
plant  investment.  Enough  current  assets  were  demanded  to  pay 
out  all  debts,  by  the  books  at  least,  and  leave  a  one  hundred  per 
cent,  margin  for  shrinkage.  The  machinery,  buildings,  fixtures, 
etc.,  were  considered  almost  as  junk  in  spite  of  the  fact  that, 
in  a  manufacturing  plant  at  least,  they  form  the  productive  ele- 
ment in  the  whole  scheme  and  without  them  the  current  assets 
would  be  of  shortlived  nature.  Of  late,  however,  the  plant,  pro- 
vided it  be  in  sound  condition  and  of  a  productive  efficiency,  is 
considered  from  a  credit  standpoint  as  of  mighty  good  value. 
Nothing  in  the  nature  of  explanation  can  begin  to  approach  an 
actual  inspection  of  the  -plant  in  operation.  Therefore  it  is  well 
worth  the  time  and  effort  in  order  to  determine  whether  its 
productive  condition  is  up  to  such  a  standard  of  efficiency  as 
will  make  it  possible  for  the  credit  man  to  pass  it  as  a  good,  live, 
if  not  a  quick  or  liquid  asset. 

THINGS  TO  CONSIDER  AT  THE  PLANT 

p  In  visiting  a  plant  a  credit  man  has  three  things  to  consider, 
namely,  the  records,  the  plant  as  a  productive  force,  and  the 
morale  of  the  organization.  The  order  in  which  these  should  be 
taken  up  and  examined  is  to  a  very  large  extent  a  matter  of  opin- 
ion.   It  seems,  however,  that  the  examination  of  the  books  may 

^  more  rightly  be  classed  as  an  accounting  proposition.     If  the 


THE  INTERVIEW  AND  VISIT  TO  PLANT      221  ^ 

statement  has  l^een  an  audited  statement  compiled  by  a  certified 
accountant  then  the  figures  can  be  taken  as  authentic  and  analyzed 
for  their  value  as  the  best  interest  of  the  bank  may  appear.  The 
verification  of  the  books,  however,  is  only  to  make  sure  that  the 
records,  upon  which  the  analysis  structure  is  reared,  is  con- 
sistent and  honest  and  that  the  analysis  is  being  made  on  a  sound 
premise.  It  is  in  truth  an  accounting  proposition  to  prepare  fori 
credit,  and  such  an  examination  should  be  conducted  by  the  ac- 
countant for  the  bank,  perhaps  acting  under  the  direction  of  the 
credit  man.  It  is  not  the  business  of  a  visit  but  rather  a  protracted  J 
stay.  The  things  to  do  are  simple  enough  in  as  they  afifect  credit. 
The  honesty  of  the  statement  should  be  proved  and  the  quickness 
and  nature  of  the  current  assets  should  be  assured.  Old  accounts 
should  be  segregated.  Old  bills  receivable  should  be  set  apart,  as 
should  those  that  seem  to  have  been  given  in  settlement  of  ac-. 
counts  that  have  reached  maturity.  The  testing  of  the  inventory 
is  a  long  and  arduous  task,  but  if  a  proper  material  cost  record  is 
kept,  and  if  the  credit  man  takes  a  trial  balance  and  uses  it  in  con- 
junction with  the  last  statement,  some  very  interesting  sidelights 
can  l3e  found  that  will  in  a  measure  help  to  check  profits  and 
losses  and  will  aid  in  forming  an  opinion  of  the  present  condition. 
In  the  matter  of  trial  balances  that  are  sometimes  given  between  -i 
statements  the  credit  man  should  insist  on  getting  the  material 
cost  of  sales  for  the  period,  as  without  this  item  an  intelligent 
reading  of  a  trial  balance  is  an  almost  impossible  task.  For  this 
reason  one  of  the  most  valuable  things  the  credit  man  can  do  in 
his  oflfice  investigation  at  a  plant  is  to  ascertain  something  con- 
cerning the  method  of  cost  accounting  the  company  may  have  in- 
stalled.   If  it  shows  clearly  this  material  cost  of  sales  item,  the 


222  THE  BANKER'S  CREDIT  MANUAL 

credit  man  may  feel  assured  that  the  head  of  the  plant  has  some 
chance  of  knowing  between  inventories  whether  he  is  making  any 
L   real  headway. 

THE  ROUTE  THROUGH   THE   PLANT 

The  element  of  plant  efficiency  is  a  most  important  matter  and 
one  that  the  credit  man  should  take  time  to  investigate.  There 
are  many  different  angles  from  which  to  view  a  plant.  But  a 
little  thought  will  demonstrate  that  there  is  one  best  and  most 
natural  way.  While  a  haphazard  trip  through  the  plant,  such  as 
is  offered  to  sightseers,  would  be  interesting  and  perhaps  instruc- 
tive, it  gives  little  real  chance  to  understand  processes  or  produc- 

r-tion  systems.  And  though  there  may  be  many  sightseeing  routes, 
there  is,  in  the  mind  of  the  writer  at  least,  only  one  inspection 
route  that  covers  the  ground  thoroughly,  gets  a  real  bird's-eye 
view  and  makes  it  possible  for  the  inspector  to  carry  away  a  true 
and  concise  opinion  of  the  efficiency  of  the  production  manage- 
ment. This  route  enters  the  plant  over  the  receiving  platform  and 
leaves  through  the  shipping  room.  Between  these  two  points  the 
route  should  cover  exactly  that  that  the  raw  material  covers 
in  its  transformation  into  the  finished  product. 

By  following  this  plan  and  sticking  to  the  main  product — if 
there  be  by-products — until  the  point  where  the  main  product  is 
complete,  even  a  tyro  can  tell  whether  the  advance  has  been  log- 
ical and  direct.  If  the  examiner  follows  the  material  he  can 
easily  see  whether  the  route  is  a  direct  one  or  whether  it  is  full  of 

!  back  currents  and  eddies.  If  the  material  goes  back  and  forth 
or  up  and  down  and  is  not  handled  progressively  so  that  every 
stage  brings  it  nearer  the  end  of  its  journey,  there  can  not  help 
but  be  unnecessary  steps  on  the  part  of  labor.  This  creates  a  large 


THE  INTERVIEW  AND  VISIT  TO  PLANT      223--^ 

unproductive  percentage  in  what  may  be  called,  on  the  cost  sheets, 
productive  labor.  The  most  efficient  office  and  production  man- 
agers often  spend  hours  and  days  over  the  floor  plans  of  their  fac- 
tories with  cardboard  cut-outs  of  machinery  reduced  to  scale, 
placing  them  and  moving  them  so  that  the  material  will  be  han- 
dled, when  in  production,  with  the  least  back-draft  or  production 
drag.  In  antithesis  to  this  there  are  many  plants  in  which 
new  machinery  is  placed  in  any  vacant  spot  quite  irrespective  of 
whether  that  spot  is  near  the  line  of  march.  These  men  oi^erate 
under  the  plan  of  having  the  mountain  come  to  Mohammed  and 
do  not  care  for  the  expense  of  inefficient  or  superfluous  handling. 

GENERAL   PLANT   EFFICIENCY 

1 

Efficiency  in  plant  operation  is  also  cut  down  immensely  by  ' 
poor  lighting.  The  credit  man  who  is  interested  in  the  efficiency 
of  his  risk  can  well  remember  this  and  note  both  lighting  and 
general  cleanliness.  If  a  plant  is  dark  and  full  of  litter,  piles  of 
junk  and  scrap  material,  it  is  a  pretty  safe  thing  to  decide  that 
the  management  is  not  keen  to  the  results  that  can  be  achieved 
by  efficiency. 

Of  a  similar  nature  are  the  precautions  that  may  be  taken  '^ 
against  accident.  Open  moving  machinery  is  a  menace  and  should 
be  avoided  whenever  possible.  The  installation  of  safety  devices 
is  not  an  expense  but  an  investment  that  pays  handsome  returns. 
Whenever  a  factory  is  found  that  is  fully  protected  against  acci- 
dent by  the  latest  protective  devices,  one  may  be  reasonably 
sure  that  the  management  is  in  conservative  and  intelligent  hands,  i 

During  the  trip  through  the  plant  it  is  well  to  note  the  fire  pre-  ^ 
vention  arrangements,  the  location  of  fire  hose  stations,  etc.  If  j 
there  is  a  sprinkler  system  the  danger  from  loss  by  fire  is  very 


^224  THE  BANKER'S  CREDIT  MANUAL 

greatly  lessened,  and  as  the  likelihood  of  continuous  operation 
is  increased,  the  credit  risk  becomes  a  better  one.  Fire  drills  may 
or  may  not  be  a  part  of  the  routine.  If  they  are  they  further  re- 
duce the  fire  risk. 

^  One  very  important  item  in  the  success  of  any  manufacturing 
plant  is  the  spirit  of  the  organization.  A  look  at  the  payroll  or 
employment  record  will  do  something  to  determine  the  average 
length  of  employment  and  the  steadiness  of  the  company's  labor. 
But  it  is  not  a  difficult  matter  to  start  a  conversation  here  or 
there  on  the  way  through  the  plant,  with  this  foreman  or  that 

j_  and  get  his  view  of  the  management.  Many  little  sidelights  may 
be  thus  secured  that  in  the  aggregate  make  for  a  very  clear  gen- 
eral impression. 

USE  FOR  A   KODAK 

The  general  impression  can  often  be  fixed  for  future  reference 
if  the  credit  man  will  carry  a  small  pocket  camera,  of  good  lens 
quality,  and  take  frequent  pictures.  These,  when  mounted  in  the 
credit  file,  will  recall  to  the  credit  man  much  detail  that  might 
otherwise  escape  his  memory.  It  is  a  simple  way  of  recording 
physical  facts  for  the  benefit  of  boards  of  directors  or  discount 
committees.  Very  often  the  photograph  of  a  well-arranged  plant 
properly  housed,  will  make  ix)ssible  the  extension  of  a  credit, 
through  committee  action,  that  could  not  possibly  have  been  han- 
dled in  any  other  manner,  as  it  is  practically  impossible  to  have 
the  committee  see  the  plant. 


CHAPTER  XI 
Depreciation  and  Generalities 

There  seems  at  times  to  be  a  misunderstanding  of  the  term  de- 
preciation, and  the  place  it  fills,  both  in  the  productive  world  and 
the  credit  field.  We  too  often  hear  of  instances  where,  companies 
having  made  a  very  handsome  profit,  the  directors  charge  off 
liberally  for  depreciation.  Again,  where  profits  are  scant,  de- 
preciation is  sidetracked  or  materially  reduced.  Managements 
that  work  along  such  a  line  have  lost  track  of  a  most  important 
fact,  in  that  depreciation  is  in  no  wise  an  offspring  or  aftermath 
of  profits  to  be  written  big  when  profits  are  big,  and  to  be  written, 
small  or  not  at  all  when  profits  are  small.  Depreciation  is  abso- 
lutely a  constant  condition  and  a  steady  average  charge  in  the 
transacting  of  business.  No  business  can  be  conducted  without 
depreciation  of  some  kind  any  more  than  it  can  be  conducted 
without  the  payment  of  wages.  It  is  absolutely  one  of  the  pen- 
alties or  costs  of  doing  business  and  must  be  figured  as  such  by 
the  honest  and  conservative  business  manager.  The  nature  of 
depreciation  accounts  is  to  set  aside  a  reserve  from  profits  to  take 
care  of  the  reduction  in  the  value  of  certain  assets  through  wear 
and  tear  of  manufacture  or  otherwise ;  the  idea  behind  the  crea- 
tion of  the  reserve  being  to  achieve  a  present  value  for  the  item 
under  consideration. 

No  matter  how  careful  a  business  man  may  be  it  is  certain  that 
in  selling  his  product  he  will  sell  to  a  certain  number  of  names 

225 


226  THE  BANKER'S  CREDIT  MANUAL 

from  whom  he  will  receive  no  pay.  In  fact,  as  has  been  said  be- 
fore, a  normal  loss  is  better  than  no  loss,  as  an  indication  of  pros- 
perity. 

SALES  AND  LOSSES 

But  even  though  knowing  some  sales  will  result  in  loss,  the 
exact  amount  can  not  be  foretold.  It  should  be  then  the  custom 
to  set  up  a  reserve  for  depreciation  of  accounts  and  bills  re- 
ceivable based  upon  a  certain  percentage  of  sales  that  has,  by  ex- 
perimentation, been  found  to  be  the  normal  loss  in  that  particular 
line  of  business.  From  a  business  standpoint  this  is  good  judg- 
ment. From  the  standpoint  of  the  extender  of  credit  the  lack  of 
provision  for  this  depreciation  is  a  display  of  ignorance  of  one 
of  the  first  costs  of  doing  business  and  shows  an  unwillingness  to 
protect  the  creditor  against  bad  judgment  in  credit  granting  by  the 
management.  Whenever  no  such  reserve  is  present  the  bank  credit 
man  can  be  sure  that  in  a  liquidation  the  current  ratio  would  be 
bound  to  suffer  through  a  material  shrinkage  in  receivables. 
There  is  a  strong  probability  that,  lacking  a  reserve,  this  shrink- 
age would  be  more"  than  normal  because  the  poor  accounts  have 
probably  not  been  charged  off  regularly.  The  selling  loss  is  as 
much  a  part  of  the  cost  of  doing  business  as  the  salesman's  com- 
mission, and  the  wise  business  man  will  treat  it  as  such,  setting 
aside  from  each  month's  business  a  definite  percentage  of  profits 
or  sales  as  a  reserve  for  bad  debts  or  a  depreciation  on  receiv- 
ables. 

REPOSSESSION   LOSS 

Houses  selling  on  the  installment  time-payment  plan  have  an- 
other condition  to  face.  Of  all  the  goods  sold  on  time  it  is  cer- 
tain that  some  will  be  repossessed  because  of  non-payment  of  de- 


DEPRECIATION  AND  GENERALITIES  227 

f erred  claims.  The  percentage  of  such  goods  that  will  have  to 
be  taken  back,  refinished  and  sold  again,  with  the  selling  and  reno- 
vating as  an  added  cost,  can  be  reduced  to  an  absolute  average 
percentage  by  experimentation  and  a  proper  analysis.  In  some 
lines  this  repossession  loss  and  expense  may  be  high  or  it  may  be 
low,  but  it  can  l)e  determined  and  the  house  that  has  its  account- 
ing system  arranged  to  handle  this  correctly  makes  the  better 
credit  risk.  It  is  a  question  about  which  the  bank  credit  man 
should  have  a  thorough  understanding. 

MERCHANDISE  AT  COST 

The  next  item  among  the  assets  that  is  subject  to  a  serious  re- 
duction in  value  is  the  merchandise  account.  Merchandise  is 
almost  always  called  for  at  cost  or  less  than  cost  if  the  present 
market  is  below  cost.  It  seems  that  any  reduction  in  value  of 
this  item  is  not  one  that  can  easily  be  averaged  or  foreseen.  It 
is  more  a  matter  of  market  conditions  and  fluctuations  in  values 
and  therefore  not  a  very  good  subject  for  a  reserve  account  but 
rather  is  connected  more  directly  with  the  profit  and  loss  account. 
But  the  question  should  be  asked  and  a  comprehensive  answer 
should  be  demanded  as  to  whether  old  and  out-of -season  mer- 
chandise has  been  disposed  of  either  through  forced  sale  or 
charge-off  so  that  the  inventory  really  represents  a  fair  value. 

PLANT  DEPRECIATION 

'  The  next  asset  that  comes  in  for  consideration  under  the  de- 
preciation program  consists  of  the  plant  and  its  equipment.  :  In 
these  items  we  may  make  two  main  distinctions.   First,  there  are 


228  THE  BANKER'S  CREDIT  MANUAL 

the  buildings  which,  if  of  good  construction,  are  subject  to  a 
slow  decay  and  hence  a  low  depreciation  charge;  second,  the 
machinery,  fixtures,  tools,  etc.,  that  are  of  rapid  consumption,  as 
compared  to  buildings,  and  hence  should  be  subjected  to  a  more 
liberal  depreciation  reserve  charge.  Of  course,  the  thing  to  do 
is  to  figure  the  life  expectancy  in  these  items  in  numbers  of  years 
of  service  and  charge  them  with  a  depreciation  each  year  so  that 
at  the  end  of  that  expectancy  there  will  have  been  created  a  re- 
serve sufficiently  large  to  wipe  them  off  the  books.  If  we  take  a 
typical  example  we  may  more  readily  see  the  argument.  Sup- 
pose the  case  of  a  large  press  for  handling  sheet  metal.  The  ex- 
pectancy is  that  this  press  will  last,  as  a  productive  unit,  for  ten 
years.  Then  each  year  ten  per  cent,  of  its  cost  should  be  taken 
from  profits  and  set  aside  as  a  depreciation  reserve,  so  that  at  the 
end  of  ten  years  the  whole  cost  of  the  press  will  be  accumulated  in 
the  reserve  account  and  the  press  can  be  removed  from  the  assets, 
without  affecting  the  expressed  net  worth  of  the  company's  state- 
ment. It  is  not  a  proposition  of  arbitrarily  setting  a  yearly  lump 
sum  aside  that  bears  any  relation  to  the  profits,  because  the  profits 
have  no  resultant  connection  w^ith  the  w^earing  down  of  the  press. 
This  wear  is  the  result  of  handling  the  product  and  fabricating  it 
and  there  can  be  no  real  profits  until  this  loss  of  value  has  been 
replaced  just  as  absolutely  as  it  has  l^een  necessary  to  pay  for  fuel 
that  has  been  used  in  running  the  plant.  They  vary  only  in  degree 
of  speed  in  consumption,  both  being  destroyed  in  their  present 
form  to  produce  wealth.  The  depreciation  is  a  thing  that  can  not 
be  dodged  and  no  risk  is  a  good  one  that  is  not  taking  this  abso- 
lute cost  or  penalty  of  doing  business  into  its  calculations  and 
providing  for  it. 


DEPRECIATION  AND  GENERALITIES  229 

DEPRECIATION  DUE  TO  OBSOLESCENCE 

There  is  another  condition  that  presents  itself  and  against 
which  reserves  are  sorhetimes  attempted.  This  is  depreciation  in 
value  due  to  obsolescence.  The  life  of  a  machine  may  not  yet 
have  run  out  the  normal  course  of  its  existence  from  wear,  and 
still  it  may  be  desirable  not  to  keep  it  in  service  because  of  im- 
proved machines  that  would  do  the  work  cheaper  and  faster 
while  not  lowering  the  quality.  Let  us  suppose  a  machine  that 
cost  originally  ten  thousand  dollars,  with  an  expectancy  of  ten 
years,  and  has  actually  run  seven  years,  against  which  a  seventy 
per  cent,  depreciation  reserve  has  been  created  and  which  has 
become  obsolete. 

The  value  still  stands  on  the  books,  basically,  at  three  thousand 
dollars.  A  new  machine  is  to  be  substituted  at  a  cost  of  ten  thou- 
sand dollars.  The  question  arises :  what  is  to  be  done  with  the 
three  thousand  dollars  not  accounted  for  by  depreciation?  First 
of  all,  the  old  machine  will  be  sold  for  something,  and  to  make 
the  example  as  bad  as  possible  we  will  suppose  that  it  brings  only 
six  hundred  dollars  as  junk.  This  leaves  a  margin  of  twenty-four 
hundred  dollars  to  be  taken  care  of  in  some  way.  Should  this 
amount  be  charged  at  once  to  profit  and  loss  or  can  some  other 
way  be  devised  of  handling  it?  The  first  and  most  patent  thing 
seems  to  be  that  the  cost  of  the  new  machine  is  really  going  to  be 
twelve  thousand  four  hundred  dollars.  Supposing  the  life  of  the 
new  machine  is  estimated  at  ten  years,  would  it  be  fair  to  assume 
the  cost  twelve  thousand  four  hundred  dollars  and  create  a  reserve 
of  ten  per  cent,  of  this  each  year.  This  is  an  action  that  would 
find  support  from  many  good  accountants.  But  there  is  another 
consideration  which  is  at  least  worthy  of  mention.    The  new  ma- 


230  THE  BANKER'S  CREDIT  MANUAL 

chine  is  substituted  in  the  hope  of  greater  gain  through  better 
production.  It  would  seem,  therefore,  that  in  the  face  of  greater 
hope  for  profits  a  greater  reserve  could  be  carried.  The  old  ma- 
chine would  have  been  completely  charged  off  in  another  three 
years.  Would  it  not  therefore  be  a  proper  thing  to  put  into  effect 
a  depreciation  charge  of  one-third  of  the  remnant  of  the  old 
value,  or  eight  hundred  dollars,  and  one-tenth  of  the  market  cost 
of  the  new  machine,  or  one  thousand  dollars,  thereby  creating  a 
yearly  depreciation  charge  of  eighteen  hundred  dollars?  At  the 
end  of  three  years  the  old  machine  would  be  entirely  wiped  out 
in  accordance  with  the  original  expectancy  and  the  reserve  charge 
could  then  be  reduced  to  the  regular  ten  per  cent. 

This  method  would  allow  the  plant  to  enter  the  new  machine  at 
market  cost  plus  obsolescence  loss  not  provided  for  by  normal 
reserve.  At  the  end  of  three  years  the  reserv^e  account  and  the 
machine  account  could  be  adjusted  and  thereafter  the  machine 
carried  at  market  cost  and  depreciation  run  accordingly.  This 
would  load  an  extra  depreciation  charge  on  the  ex^^ected  in- 
creased earnings  while  the  new  machine  was  most  productive 
and  before  there  was  any  material  danger  of  it  becoming  obsolete 
itself.  At  any  rate  it  is  an  angle  on  depreciation  that  the  credit 
man  can  well  discuss  with  his  borrowers  and  which  will  help  him 
to  determine  the  degree  of  their  conservatism  and  their  willing- 
ness to  carry  plant  at  proper  depreciated  values. 

APPRAISALS 

In  connection  with  plant  assets  an  appraised  value  must  some- 
times be  considered.  Appraisals  are  most  excellent  things  to  have 
but  sometimes  an  appraisal  seems  to  the  management  to  offer  an 


I 


DEPRECIATION  AND  GENERALITIES  231  ^ 

opportunity  to  show  an  increase  in  net  worth  because  the  ap- 
praised value  may  l3e  in  excess  of  the  book  value  of  the  plant  as- 
sets. In  a  period  of  rising  prices  for  materials  of  all  kinds,  it  is 
quite  possible  for  the  present  reproduction  value  to  exceed  cost 
value  less  depreciation,  if  the  appraisal  to  establish  this  reproduc^ 
tion  value  is  based  on  the  present  cost  of  materials.  This  may 
be  a  most  excellent  matter  to  have  for  insurance  purposes,  but  if 
this  valuation  is  in  excess  of  cost  it  should  not  be  presented  on 
the  property  statement,  that  is,  used  for  a  basis  of  credit,  because 
merchants  and  manufacturers  are  not  in  business  to  make  a'profit 
or  loss  from  the  fluctuations  in  the  value  of  their  plant.  Such 
errors  may  have  crept  into  the  figures  and  the  credit  man  should 
apply  about  the  same  rule  as  in  the  case  of  merchandise.  Let 
the  plant  be  carried  at  cost  or  appraised  value  if  that  be  less  than 
cost,  and  insist  that  proper  depreciation  accounts  be  set  up  against 
the  cost  and  run  l)ack  to  cover  the  life  of  the  plant  to  date. 

PATENTS  AS  ASSETS 

Some  companies  carry  a  rather  heavy  item  in  the  assets  to 
cover  patents.  If  these  have  been  put  into  the  statement  at  actual  7 
purchase  price  it  may  l3e  fair  to  allow  them  as  an  asset.  They 
are,  however,  sharply  subject  to  depreciation  according  to  the 
length  of  time  the  patent  has  yet  to  run,  and  a  reserve  or  an 
actual  charge-off  should  be  made  in  accord  with  the  legal  life  of 
the  patent.  At  the  expiration  of  the  legal  life  of  the  patent  there 
is  no  further  patent  monopoly.  There  may  still  be  a  value  due  to 
monopoly  of  the  market, and  the  establishment  of  a  sale  for  the 
goods.  This  is,  however,  in  the  nature  of  good  will  and  of  ques- 
tionable value  as  a  liquidating  proposition.  Here  and  there  the-^ 
fact  that  patents  are  being  carried  as  assets  is  concealed  by  organ- 


2Z2  THE  BANKER'S  CREDIT  MANUAL 

izing  a  holding  company  whose  sole  asset  is  the  patent  right.  The 
stock  of  this  company  may  be  held  under  stocks  and  investments 
and  so  be  passed  as  a  non-depreciating,  fixed,  or,  in  some  cases 
even  as  a  current,  asset.  Possibilities  such  as  this  make  neces- 
sary an  accurate  detailed  statement  of  the  securities  held  as  assets 
and  this  being  properly  examined  may  disclose  some  very  inter- 
esting information. 

COLLATERAL  LOANS 

Collateral  loans  are  not  primarily  in  the  same  class  as  com- 
mercial loans  and  are  often  handled  in  an  entirely  separate  de- 
partment. There  are,  however,  several  points  that  are  worthy 
of  note  in  the  matter  of  recording  collateral  that  can  well  be  kept 
within  the  credit  department  for  reference  and  study  in  con- 
nection with  the  bank  loans.  First  and  foremost  is  a  record  of 
the  collateral  that  exists  as  a  security  on  any  one  loan.  This  is 
often  a  mixed  lot  and  a  proper  record  must  be  made  to  indicate 
the  number  of  shares  that  are  pledged  and  the  present  market 
value.  At  the  time  of  surrendering  the  collateral  it  is  also  well  to 
secure  a  receipt  for  its  return.  This  can  be  accomplished  easily 
by  the  use  of  a  card  file,  of  which  the  form  on  the  opposite  page 
is  a  reduced  reproduction. 

On  such  a  card  or  a  number  of  cards  can  be  kept  the  total  col- 
lateral back  of  any  loan.  There  is,  however,  a  further  record 
that  should  be  kept.  Any  one  kind  of  stock  or  bonds  may  be 
pledged  for  the  loans  of  many  different  people.  Untoward 
fluctuation  of  any  securities  may  therefore  affect  the  collateral 
value  on  many  different  names.  This  makes  necessary  the  estab- 
lishment of  a  proper  cro^s-record  of  the  kinds  of  collateral  which 


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236 


DEPRECIATION  AND  GENERALITIES  237 

the  bank  may  have  in  its  files  and  the  names  of  the  borrowers  who 
will  be  affected  by  market  fluctuations.  This  can  be  accom- 
plished readily  by  keeping  a  record  card  and  the  form  on  pages 
235  and  236  is  submitted  as  one  method  by  which  such  a  record 
may  be  kept. 

There  is  another  form  of  loan  on  a*  collateral  that  is  different 
in  some  vital  respects  from  the  loan  on  stock  market  collat- 
eral. This  is  the  loan  made  to  receivers  of  grain.  In  the  first 
stage  of  this  loan  the  security  is  generally  based  upon  a  bill  of 
lading  representing  the  shipment  of  a  definite  number  of  pounds 
of  grain  of  a  certain  kind.  When  the  grain  reaches  the  re- 
ceiving city  it  may  have  to  be  switched  to  the  elevator  from  the 
regular  railroad  tracks,  and  before  this  is  done  the  railroad  gen- 
erally demands  the  surrender  of  the  bill  of  lading  and  issues  in 
its  place  an  interim  switching  order.  This  order  binds  the  rail- 
road to  make  delivery  of  the  car  and  the  grain  designated  to  the 
elevator  tracks.  The  form  on  page  239  is  similar  to  those  in  gen- 
eral use. 

In  the  larger  grain  centers  the  boards  of  trade  generally  keep 
a  record  of  car  movements,  etc.,  that  makes  it  possible  to  consider 
these  switching  orders  good  interim  collateral.  Outside  the  main 
grain  centers,  however,  they  are  subject  to  some  possible  manip- 
ulation. The  railroad  does  not  hold  itself  bound  to  insist  upon 
the  return  of  the  switching  order  when  making  delivery  of  the 
car.  This  makes  it  possible  for  the  elevator  to  accept  a  weigh 
and  reload  order  and  allows  the  possible  forwarding  of  the  grain, 
the  securing  of  a  new  bill  of  lading  and  the  actual  hypothecation 
of  the  grain  without  disturbing  the  switching  order  in  the  col- 
lateral files  of  the  bank.  To  overcome  this  possibility  the  writer 
has  followed  the  policy  of  demanding  that  the  elevator  acknowl- 


2Z^  THE  BANKER'S  CREDIT  MANUAL 

edge  the  switching  order  by  stamping  the  following  phrase  on  its 
face  and  having  it  signed  by  some  official  of  the  elevator  com- 
pany: 'The  Blank  Elevator  Company  will  receive  but  will  not 
weigh  and  reload,  or  forward,  or  ship,  the  grain  covered  by  this 
switching  order  without  the  return  to  them  of  this  original  order. 
The  Blank  Elevator  Company,  by ,  Secretary." 

This  allows  the  elevator  company  to  receive  the  grain  but 
binds  it  not  to  forward  the  grain  except  upon  the  surrender  of 
the  receipt.  It  makes  the  switching  order  very  closely  approxi- 
mate an  interim  elevator  receipt. 

The  forms  on  pages  241  and  243  are  filled  out  as  a  collateral 
record  to  indicate  the  grain  pledged  and  are  so  self-evident  that 
they  need  no  detailed  explanation. 

ACCEPTANCES 

Until  quite  recently  most  business  has  been  transacted  in  this 
country  by  means  of  the  open-book  account.  The  trade  accept- 
ance, while  not  by  any  means  a  new  form  of  commercial  instru- 
ment, IS  a  new  force  in  the  business  of  this  country.  Its  principal 
feature  is  to  make  it  possible  for  the  merchant  or  manufacturer  to 
have  the  credits  for  his  sales  in  such  shape  that  he  can  raise 
money,  to  finance  the  business,  by  hypothecating  them  promptly. 
The  trade  acceptance  is  being  advocated  to  make  the  receivables 
liquid  and  do  away  with  the  necessity  of  the  merchant  perform- 
ing a  banking  function.  It  expands  the  credit  field  and  liquifies 
what  has  been  a  so-called  "frozen  asset."  A  great  many  articles 
have  been  written  about  the  trade  acceptance  and  it  has  been  so 
widely  advertised  and  extolled  that  one  may  almost  believe  it  a 
panacea  for  all  business  ills.  It  may  not  be  beseeming  to  criticize 
this  trade  acceptance,  for  its  proper  use  is  undoubtedly  going  to 


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241 


• 

DATE 

ORIGIN 

RY.  ELEVATOR 
INITIALS 

NUMBER 

POUNDS 

BUSHELS 

KIND 

• 

"^""^^^ — ^-O 

L^^^_^_ 

*-J 

' — 

Size  of  original  8x  11 


GRAIN  COLLATERAL  ADJUSTMENT  SHEET 

This  sheet  indicates  additions  to,  withdrawals  from  or  switches  in  grain  collateral  pledged  with  THE 

NATIONAL  BANK  OF  COMMERCE  as  reported  on 

Value  represents  market  less  10%  for  margins.  By 

DATE 


INT 


NO. 


KIND 


PRICE 


LBS. 


BU. 


IN 


OUT 


Collateral  value  previous  sheet 


Size  of  original  8J/2  x  5j^ 


243 


DEPRECIATION  AND  GENERALITIES  245 

accomplish  much  toward  rendering  credit  more  liquid  and  mak- 
ing for  a  better  relation  between  buyer  and  seller. 

It  is  to  be  presumed  that  a  merchant  will  make  the  effort  to 
get  his  receivables  into  the  shape  of  acceptances  because  he  plans 
to  use  this  more  liquid  form  of  debt,  for  if  he  did  not  so  intend, 
one  most  potent  reason  for  forcing  the  change  of  form  w^ould 
cease  to  exist.  For  the  ordinary  merchants  who  have  one  or 
perhaps  a  few  banks  of  deposit  and  who  confine  their  borrowings 
to  these  banks  this  may  be  all  right.  But  we  are  faced  with  a  dif- 
ferent problem  when  we  consider  names  that  are  offered  in  the 
open  market  as  commercial  paper.  Here  it  is  considered  a  very 
bad  credit  sign  and  in  truth  prevents. the  sale  of  the  paper,  if  the 
maker  of  the  note  sells  or  hypothecates  his  receivables. 

The  reason  for  this  is  basic,  sound,  and  thoroughly  in  accord 
with  good  business  procedure.  The  buyer  of  the  notes  in  the 
open  market,  lacking  the  personal  connection  of  the  bank  of  de- 
posit, insists  on  the  best  paper  that  the  maker  of  the  note  in  any 
way  issues.  The  hypothecation  of  accounts  weakens  the  assets 
by  giving  a  prior  lien  against  them.  It  is  giving  to  some  one  a 
secured  or  two-name  paper  as  against  a  single-name  paper  and 
when  this  happens  the  name  must  vanish  from  the  open  market. 
Few  bank  men  buying  commercial  paper  will  for  a  moment  con- 
sider the  notes  of  any  name  if  that  name  borrows  in  any  other 
market  offering  better  security,  and  the  two-name  rediscounted 
acceptance  would  very  probably  be  classed  as  such.  Therefore,  if 
a  company,  using  the  open  one-name  market  for  commercial  pa- 
per, wishes  to  arrange  for  its  borrowing  by  substituting  the  method 
of  rediscounting  acceptances  in  place  of  floating  its  one-name 
note,  it  must  have  in  its  possession  a  sufficient  quantity  of  accept- 
ances to  cover  the  peak  load  of  its  borrowings.     If  it  has  not 


246  THE  BANKER'S  CREDIT  MANUAL 

enough  such  acceptances  and  it  can  not  float  two  kinds  of  paper 
it  is,  ipso  facto,  compelled  to  retain  that  form  which  can  be 
floated  in  sufficient  amount  to  secure  the  funds  necessary  to  its 
demands,  or,  in  other  words,  the  straight  note  of  to-day. 

It  is  perhaps  a  good  thing  to  urge  merchants  to  get  their  re- 
ceivables into  the  shape  of  acceptances  because  of  the  more  gen- 
eral reasons  advanced  so  ardently  by  the  advocates  of  the  accept- 
ance plan,  but  the  waser  credit  man  will  caution  his  client  against 
the  indiscriminate  use  of  these  acceptances  unless  they  are  avail- 
able in  sufficient  quantity  so  as  not  to  cut  off  necessary  avenues 
of  credit  by  their  use. 

It  is  possible  that  single-name  paper  and  the  negotiated  ac- 
ceptances, accumulated  by  the  same  company,  may  appear  in  the 
market  side  by  side,  the  buying  banks  differentiating  between 
the  strength  of  the  one-  and  two-name  paper  by  the  establishing 
of  different  rates  of  interest.  In  this  kind  of  a  market  the  credit 
man  should  use  every  effort  to  ascertain  the  amount  of  accept- 
ances rediscounted,  so  as  to  know  what  part  of  the  receivables' 
have  been  hypothecated,  and  also  what  the  contingent  liability 
is  on  this  type  of  financing.  As  a  matter  of  sound  economics,  it 
is  probable  that  the  registration  of  acceptances  sold  might  be  de- 
veloped to  good  advantages  1x)th  for  the  name  selling  the  paper, 
and  for  the  bank  buying  it.  If  this  type  of  registration  could  be 
developed,  the  enlargement  of  the  commercial  paper  market  on  a 
sound  basis  would  be  assured,  and  the  criticism  now  existing 
against  the  sale  of  acceptances  would  be  largely  vitiated. 

There  is  in  some  fields  a  well-defined  movement  to  have  the 
bank  of  deposit  of  the  customer  wishing  to  sell  his  acceptances 
establish  trust  funds  with  these  acceptances  as  security,  and  issue 
against  the  same  participating  certificates,  which  could  be  sold 


DEPRl^:CIATION  AND  GENERALITIES  247 

by  the  bank  or  through  l3rokers.  The  estabhshment  of  such  funds 
would  make  it  possible  for  the  buyers  of  the  straight  paper,  or 
the  discounted  acceptances,  to  ascertain  the  volume  of  such  dis- 
counted acceptances,  and  would  be  thoroughly  economic. 

It  seems  to  need  only  a  word  in  passing  to  point  out  that  such 
matters  as  require  legal  knowledge  should  be*  left  to  the  bank's 
attorneys.  No  matter  how  well  versed  a  credit  man  may  be  in 
law,  the  lawyer  is  still  the  specialist,  and  legal  matters  or  legal 
papers  should  always  be  approved  by  him.  Supposed  sound 
contracts,  securities  or  guarantees  have  not  held  water  and  loss 
has  resulted  that  might  have  been  averted  by  a  proper  legal 
opinion. 

THE  ROBERT  MORRIS  CLUB  AND  A  CODE  OF  CREDIT 
DEPARTMENT  ETHICS 

There  is  an  organization  of  bank  credit  men,  banded  together 
under  the  name  'The  Rol^ert  Morris  Club,  of  the  National  As- 
sociation of  Credit  Men,"  with  the  purpose  of  bettering  credit 
department  ethics,  system  and  knowledge.  In  February,  1916, 
this  body  adopted  a  set  of  resolutions  embodying  a  code  of  ethics 
that  every  bank  man  should  study  and  become  thoroughly  famil- 
iar with.  By  strict  adherence  to  this  code  much  misunderstand- 
ing will  be  avoided  and  far  better  cooperation  gained.  It  would 
also  materially  benefit  credit  methods  if  the  commercial  credit 
men  could  become  well  versed  in  this  ethical  code. 


Credit  Department  Ethics 

RESOLVED :  The  first  and  cardinal  principle  of  credit  investiga- 
tion is  the  sacredness  of  the  replies,  and  any  violation  of  this  princi- 
ple places  the  violator  beyond  the  pale  of  consideration  of  the  honest 
credit  man. 

RESOLVED :  Every  letter  of  inquiry  should  indicate  in  some  def- 
inite and  conspicuous  manner  the  object  of  that  inquiry. 

RESOLVED:  When  more  than  one  inquiry  on  the  same  subject 
is  simultaneously  sent  to  the  banks  in  the  same  city,  the  fact  should 
be  plainly  set  forth  in  the  inquiries. 

RESOLVED :  Individual  consideration  by  the  recipient  of  a 
credit  inquiry  of  the  distinguishing  marks  therein  will  increase  the 
eflficiency  of  credit  investigation. 

RESOLVED:  Indiscriminate  revision  of  files  regardless  of  the 
presence  of  the  note  in  the  market  is  unnecessary,  wasteful  and  un- 
desirable. 

RESOLVED :  That  it  is  the  sense  of  this  conference  that  the  con- 
tinued observance  of  high  ethical  principles  in  the  conduct  of  the 
credit  departments  of  banks  and  banking  institutions  insures  the 
best  results  and  cooperation  in  safeguarding  banking  credits. 

RESOLVED :  It  is  not  permissible  nor  the  part  of  good  faith  in 
soliciting  accounts  from  a  competitor  to  seek  in  formation  from  tHe 
competitor  without  frankly  stating  the  object  of  the  inquiry. 

RESOLVED :  That  it  is  the  sense  of  this  meeting  that  in  answer- 
ing inquiries  the  source  of  the  information  should  not  be  disclosed 
without  permission  and  that  letters  written  in  answer  to  inquiries 
should  be  held  inviolable  by  the  recipients. 

RESOLVED :  That  in  seeking  information  the  name  of  the  in- 
quirer in  whose  behalf  the  reference  is  made  should  not  be  disclosed 
without  permission. 

RESOLVED :  That  in  answering  inquiries  it  is  advisable  to  dis- 
close all  material  facts  bearing  on  the  credit  of  the  borrower  to  the 
end  that  the  paper  offered  in  the  open  market  be  of  the  same  descrip- 
tion as  that  held  by  the  borrower's  own  bank. 

Adopted  February,  1916,  by 

The  Robert  Morris  Club 

of  the  National  Association  of  Credit  Aen 


n 


^^'-L  '^'CRE^sp  ^      °^^E  due:     J    °  "eturn 

^^^    AND     TO     J°  ^°  ^^NTS  OM  J^"^  ^^NalTY 

JAN   261933        , 


^/ 


PEB    11  1933 


i/f//V 


.IBRARY  USE 
"OV  .6   1934^ CT  9     1951 

20Jur6lMX 


2S 


'935 


JUL  1 0  igsi 


YC  23998 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 


i;i. 


t  ; 


X  'r  .ij  i, 


jr  1 


